Many Borrowers Defaulted on Subprime Mortgages Ultimately Disrupting Financial Markets

question 60

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 financial disruption?

• A) The AD curve likely shifted left which caused a negative output gap
• B) The AD curve likely shifted left 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