The effect of the subprime loan crisis pushed the financial friction up. This pushed the MP curve up and the AD down.

Question

Quizplus · Accepted Answer

The subprime loan crisis led to an increase in financial friction, which caused the monetary policy (MP) curve to shift upward. This, in turn, led to a decrease in aggregate demand (AD) as higher interest rates made borrowing more expensive for consumers and businesses. Therefore, A is the correct answer.

The Effect of the Subprime Loan Crisis Pushed the Financial