Consider the theory of Asset Demand Recall that in 2007 mortage backed securities(MBS) were rated AAA and were broadly traded in financial markets. After subprime mortgage defaults became common and the market saw MBS as risker, which of the following can we predict would happen?

A The market interest rates on MBS will increase as the equilibrium price decreases.

B The supply of MBS will increase.

C The equilibrium quantity of MBS will decrease.

A and C.

A, B and C.

1. …