Suppose that the Bank of Canada engages in monetary tightening, raising its Overnight Rate Target from 0.25 to 4 percent, so as to ‘build back better.’ (c) Why would it make no sense for any commercial bank to provide a mortgage for an interest rate lower than 4.25 percent? (d) Why are interest rates on mortgages likely to be far above 4.25 percent?

ECON MICRO
5th Edition
ISBN:9781337000536
Author:William A. McEachern
Publisher:William A. McEachern
Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance
Section: Chapter Questions
Problem 6.12P
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Suppose that the Bank of Canada engages in monetary tightening, raising its Overnight Rate Target from 0.25 to 4 percent, so as to ‘build back better.’


(c) Why would it make no sense for any commercial bank to provide a mortgage for an interest rate lower than 4.25 percent?


(d) Why are interest rates on mortgages likely to be far above 4.25 percent? 

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