Question

In: Finance

Patrick and Mary wanted to become homeowners back in 2008 and applied for a loan from...

Patrick and Mary wanted to become homeowners back in 2008 and applied for a loan from a mortgage lender. Patrick and Mary's combined income was $50,000 a year and their credit history was poor. They were approved for a mortgage loan but couldn't make the payments. This is an example of a result of _______.

a.

inflation
b.

purchasing power
c.

a depression
d.

a recession

Solutions

Expert Solution

Option c is correct. a depression

In 2008, we saw sub-prime mortgages defaulting as a result of depression. The home owners could not make payments as they lost jobs and did not have money to pay back the loans.

Option a is incorrect because inflation refers to general increase in prices of goods and services

Option b is incorrect because purchasing power implies the worth of goods and services we can buy with cash on hand

Option d is incorrect because a recession is a slight contract int the growth of an economy. A depression is more severe than recession. What happened in 2008 was a depression, not just a recession.

jeff jeffy answered 2 years ago
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