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 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
Correct Answer:
Verified
Q21: If higher inflation ensues from a temporary
Q27: When a permanent negative supply shock hits
Q27: Macroeconomic Shocks & Policies Q28: Many borrowers defaulted on subprime mortgages ultimately Q28: When a permanent negative supply shock hits Q30: When an aggregate demand shock hits the Q31: A negative shock in aggregate demand will Q34: If higher inflation ensues from a temporary Q34: A negative shock in aggregate demand will Q35: When a temporary negative supply shock hits
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