Question
Asked Feb 15, 2020
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Based on class discussion, the following are some of the factors that likely
contributed to the Housing Bubble of 2000-2006, EXCEPT:
O Monetary Expansion
Speculation in Housing Markets
O Expectations of future recession
O Securitization of Mortgages
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Based on class discussion, the following are some of the factors that likely contributed to the Housing Bubble of 2000-2006, EXCEPT: O Monetary Expansion Speculation in Housing Markets O Expectations of future recession O Securitization of Mortgages financ

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Expert Answer

Step 1

During the period between 2001 to 2006, prices of houses in the U.S. increased rapidly to 45 percent after adjusting to inflation. People prefer to investing in housing as it provides a roof for living. The demand for houses rose rapidly as people preferred to live their own house.

Step 2

The important factors that likely contributed to the housing bubble of 2000 to 2006 are the following.

  • Monetary expansion: During the first half of the decade, the Federal Reserve lowered the interest rate from 6.5 percent to 1 percent. This expansionary monetary policy increased credit availability and cause a bubble in house prices.

 

  • Speculation in housing markets: The entry of speculators in the housing market increased the demand for houses and this make the bubble bigger.

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