Many Borrowers Defaulted on Subprime Mortgages Ultimately Disrupting Financial Markets

question 43

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 positive inflation gap.
• B)The AD curve likely shifted right which caused a positive inflation gap.
• C)The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate.
• D)The AD curve likely did not shift.
• E)none of the above

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Definitions:

Manufacturing Overhead

The indirect costs related to manufacturing that are not directly tied to a specific product, such as factory rent, maintenance, and utilities.

Job Cost Accuracy

The precision with which a company estimates and tracks the costs associated with specific jobs or projects.

Overhead Cost Driver

A factor that causes the cost of overheads to change, such as machine hours or labor hours.

Predetermined Overhead Rate

A rate estimated before a period begins, used to allocate overhead costs to products or job orders based on a chosen activity base.