Question
(b) (1 point) In the U.S., mortgage interest payments are tax-deductible.1 That is, a mortgage borrower can benefit by paying lower income taxes if she
(b) (1 point) In the U.S., mortgage interest payments are tax-deductible.1 That is, a mortgage borrower can benefit by paying lower income taxes if she also pays a mortgage. Question: consider the mortgage lending market. How does the policy of allowing for mortgage interest tax deduction impact the demand and supply curves of mortgage lending?2 What about the impact on the equilibrium quantity of mortgage lending and the equilibrium mortgage interest rate? (c) (1 point) In the U.S., most mortgage repayments are guaranteed directly or indirectly by the Federal government. That is, if you are an investor (lender) in the mortgage market, you dont have to worry about the mortgage borrow- ers defaulting. In case of a default, the government will pay you. Question: How does this impact the supply curve, demand curve, as well as equilibrium quantity and equilibrium interest rate in mortgage lending?
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