EC250 Chapter Notes - Chapter 1: Bankruptcy Of Lehman Brothers, Mortgage Loan, Monetary Policy
Document Summary
Long term interest rates are set by market forces however by affecting short term interest rates the central bank affects the cost of funds indirectly affecting longer rates: cost of short term funds goes does financial costs for banks are lower therefore giving the ability to lower long term rates, nominal interest rates (in terms of money) How the mortgage crisis developed: history, 2001 brief us recession, collapse of the tech stock market bubble (s&p and nasdaq dropped considerable amounts, reduction in wealth consumption dropped, terrorist attacks scared people and retail sales fell, fed lowered interest rates to improve economy and increase spending, developments in the financial sector o. Suffering a loss of therefore the return is 95% due to the loss of 95$ of the investment leaving in capital: rising house prices, when the value of the house increases the borrower can refinance the house taking a bigger loan.
