Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter ST5, Problem 5CQ
To determine
The relationship between holding of mortgage properties and evaluation of a borrower’s creditworthiness.
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When mortgages originators sell mortgages to Fannie Mae, Freddie Mac, and investment bankers the originators have no additional liability for possible default by the borrow. How will this arrangement influence the incentive of the originators to scrutinize the creditworthiness of the borrow?
What are the elements of a firm's credit policy? To what extent can firms set their own credit policies as opposed to having to accept policies that are dictated by "the competition"?
Examine the principal-agent problem in credit markets. What impact can policies that limit how much interest a moneylender can charge on a loan have on credit market participants?
Chapter ST5 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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- "The rate of return to bonds should be near equal to the equilibrium interest rate in the credit market." True or False?arrow_forwardCritically analyses the Mortgage Markets and its impact on the regional economiesarrow_forwardUse the scenario to answer the following question. Bryan has applied for a mortgage with Bank of America. The bank is reviewing the amount of Bryan's monthly income that is used to pay his monthly debt to determine the level of risk in offering him a mortgage. Which of the following concepts characterizes the basic components of a credit score being utilized by the bank? A- payment history B- debt-to-income ratio C- available credit D- length of credit historyarrow_forward
- Discuss how the national credit act deals with information held by the credit bureauxarrow_forwardWhich of the following is NOT typically a role for a financial intermediary...? make public financial statements of borrowers evaluate the riskiness of lending to borrowers pool funds from lenders monitor the financial conditions of borrowersarrow_forwardDistinguish between the general credit control selective credit control and examine their relative meritarrow_forward
- Select all of the following that accurately describe creditor and debtor rights: Group of answer choices One example of a creditor right is the right to repossess collateralized assets. Increasing creditor rights will tend to increase interest rates, but the effect on quantity is unknown. One example of a debtor right is the right to garnish wages. Increasing debtor rights will tend to increase interest rates, but the effect on quantity is unknown.arrow_forwardConstruct a well-labeled diagram of supply and demand in the market for loans that depicts an equilibrium with credit rationing. Be sure to clearly identify the market interest rate, the quantity of loans supplied and the quantity of loans demanded.arrow_forwardCredit histories allow firms to ( A) identify high-risk borrowers, so they can be eliminated and interest rates kept down for others. (B) increase the number of credit cards issued, and interest rates go up as a result. (C) increase the number of credit cards issued, and interest rates go down as a result D) lower the number of credit cards issued, and interest rates go up as a result (E) increase market power in the credit card industry, raising interest rates.arrow_forward
- Explain how government gains from unexpected inflation when it borrows? If this is true, why would it choose to offer indexed bonds?arrow_forwardWhich state body determines the value of the interest rate and what instruments are used to regulate it?arrow_forwardSubprime mortgages are O mortgages issued to borrowers with flawed credit histories. government-backed mortgages issued by Fannie Mae and Freddie Mac. mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgages. mortgages which are bundled together by financial institutions and sold to investors.arrow_forward
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