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3-F.) Mentioned in part B was a demand side tax policy designed to increase homeownership rates. In addition to this policy, the government established two

3-F.) Mentioned in part B was a demand side tax policy designed to increase homeownership rates. In addition to this policy, the government established two Government Sponsored Enterprises (GSEs) designed to promote homeownership (Freddie Mac and Fannie Mae). Freddie and Fannie's mission is to buy mortgages that banks have made in the past so that these banks can have more money available to make new mortgages to additional homebuyers. Over the years, the financial markets in which these GSEs operate in have come to believe that despite Freddie and Fannie "private" ownership the government would never allow them to fail. (In 2008, the market's belief turned out to be correct when the government stepped in to prevent Freddie and Fannie from going under due to the high volume of bad mortgages they purchased, guaranteed and re-sold.) Which side of the housing market (supply or demand) were Freddie and Fannie designed to influence, and in which direction? (5.0 Points) Hint: Which side of the market would their mission affect?

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