The effect of the subprime loan crisis pushed the __________.This pushes the MP curve __________ and the AD __________.
A)risk premium up;up;down
B)inflation rate up;up;down
C)unemployment rate down;down;up
D)risk-free interest rate up;down;up
E)federal funds rate to zero;down,down

Question

Quizplus · Accepted Answer

The subprime loan crisis increased the risk premium, which would push the MP (monetary policy) curve up. This would cause the AD (aggregate demand) curve to shift down, as higher interest rates discourage borrowing and spending. Therefore, the correct answer is A, as none of the other choices accurately reflect the impacts of the subprime loan crisis.

The Effect of the Subprime Loan Crisis Pushed the __________