One Reason the Decline in Asset Prices Just Before and During

question 187

Multiple Choice

One reason the decline in asset prices just before and during the 2008 recession undermined the health of the economy is that they:

• A)raised the value of the dollar making U.S. goods more expensive to foreigners.
• B)raised the trade deficit when foreigners reduced purchases of U.S. assets.
• C)led to a contraction in consumer loans because the value of collateral declined.
• D)undermined consumer and business confidence.

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Definitions:

Inelastic Demand

A market scenario where the quantity demanded of a good or service changes minimally in response to price changes.

Perfectly Inelastic

A situation where the quantity demanded or supplied of a good does not change regardless of the changes in its price.

Perfectly Elastic

A situation in economics where the demand or supply for a good is completely responsive to changes in price, resulting in an infinite elasticity.

Mutual Interdependence

A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect its rivals to react to the change.