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