Many Borrowers Defaulted on Subprime Mortgages Ultimately Disrupting Financial Markets

question 77

Multiple Choice

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

• A)The AD curve likely shifted left which caused a negative output gap.
• B)The AD curve likely shifted left causing a negative inflation gap.
• C)The AD curve likely shifted left followed by an downward movement along the MP curve to a lower equilibrium interest rate in the short run.
• D)all of the above
• E)none of the above

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