John Taylor has argued that: "Considerable empirical work supports the view that interest rates were too low for too long in 2003-2005 and were a major factor in the housing boom and bust that resulted." Source: John Taylor, First Principles: Five Keys to Restoring America's Prosperity, New York: W.W. Norton & Company, 2012, p. 133. When comparing the actual target federal funds rate and the federal funds rate suggeted by the Taylor rule during the 2003-2005 period, the Taylor rule federal funds rate was greater than the actual target federal funds rate, thus indicating that interest rates were too low during the 2003-2005 period. The interest rates during the 2003-2005 period may have contributed to the housing boom and bust by: (Select all that apply) A. creating a situation where financial institutions made too many loans because of the high demand for mortgages. B. allowing Fannie Mae and Freddie Mac to bundle large amount of loans into mortgage-backed securites. C. keeping the demand for mortgage loans above the equilibrium level causing the prices to become inflated. D. setting interest rates at a level that caused the public to save a higher percentage of their income in mortgage loans.
John Taylor has argued that: "Considerable empirical work supports the view that interest rates were too low for too long in 2003-2005 and were a major factor in the housing boom and bust that resulted." Source: John Taylor, First Principles: Five Keys to Restoring America's Prosperity, New York: W.W. Norton & Company, 2012, p. 133. When comparing the actual target federal funds rate and the federal funds rate suggeted by the Taylor rule during the 2003-2005 period, the Taylor rule federal funds rate was greater than the actual target federal funds rate, thus indicating that interest rates were too low during the 2003-2005 period. The interest rates during the 2003-2005 period may have contributed to the housing boom and bust by: (Select all that apply) A. creating a situation where financial institutions made too many loans because of the high demand for mortgages. B. allowing Fannie Mae and Freddie Mac to bundle large amount of loans into mortgage-backed securites. C. keeping the demand for mortgage loans above the equilibrium level causing the prices to become inflated. D. setting interest rates at a level that caused the public to save a higher percentage of their income in mortgage loans.
Chapter16: Monetary Policy
Section: Chapter Questions
Problem 7SQ
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning