The Financial Market Shock That Occurred During the Great Recession

question 43

Multiple Choice

The financial market shock that occurred during the Great Recession increased the default-risk premium,and the housing shock that also occurred during the recession reduced wealth and residential construction.These two events would result in

• A) a positive output gap and a rising inflation rate.
• B) a negative output gap and a rising inflation rate.
• C) a positive output gap and a falling inflation rate.
• D) a negative output gap and a falling inflation rate.

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Definitions:

Fair Value Measurement

This is the estimation of the price at which an asset or liability could be exchanged in a current transaction between willing parties, other than in a liquidation sale.

Financial Instruments

Contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

FASB

The Financial Accounting Standards Board, an organization responsible for setting and improving financial accounting and reporting standards in the U.S.

IASB

The International Accounting Standards Board, responsible for developing and enforcing the International Financial Reporting Standards (IFRS).