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No more info 1. Figure 1 shows the effective federal funds rate and the 30-year fixed rate mortgage in the United States. 20 4 bestyr
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1. Figure 1 shows the effective federal funds rate and the 30-year fixed rate mortgage in the United States. 20 4 bestyr hown 15600 1861 TITO 78610 686 or to 786 60 TO SSST'S TO 01.07.1956 2861 910 886 SOTO 6861 PO TO 0661 TO 1661 TOTO 1661 Toto 661 2661 TT TO 7661OTO $66 600 966 so to 2661"Oto 01.06.1998 01.03.1999 01.04.2000 01.03.2001 ZOOTTO TO 01.01.2003 LOOT ZITO POOT IT TO 01.10.2005 01.09.2006 01.08.2007 01.07.2005 01.06.2009 01.05.2010 01.04.2011 01.03.2012 01.02.2013 01.01.2014 01.12.2014 01.11.2015 01.09.2017 01.08.2015 6TOZILO TO OTOT 90-10 -Effective federal fundt rate yar filed rate martup Figure 1 (a) How does the credit spread between the effective federal funds rate and the 30-year fixed rate mortgage change over time in the United States? [5 marks) (b) Discuss the possible reasons for your answer in (a) above. [5 marks) (c) Explain how information problems lead banks to lend too little to some customers and too much to others? [15 marks) (d) Briefly explain why did rising house prices prior to 2007-2009 make retail banks more willing to provide mortgages for low income earners with poor credit histories. [5 marks) 1. Figure 1 shows the effective federal funds rate and the 30-year fixed rate mortgage in the United States. 20 4 bestyr hown 15600 1861 TITO 78610 686 or to 786 60 TO SSST'S TO 01.07.1956 2861 910 886 SOTO 6861 PO TO 0661 TO 1661 TOTO 1661 Toto 661 2661 TT TO 7661OTO $66 600 966 so to 2661"Oto 01.06.1998 01.03.1999 01.04.2000 01.03.2001 ZOOTTO TO 01.01.2003 LOOT ZITO POOT IT TO 01.10.2005 01.09.2006 01.08.2007 01.07.2005 01.06.2009 01.05.2010 01.04.2011 01.03.2012 01.02.2013 01.01.2014 01.12.2014 01.11.2015 01.09.2017 01.08.2015 6TOZILO TO OTOT 90-10 -Effective federal fundt rate yar filed rate martup Figure 1 (a) How does the credit spread between the effective federal funds rate and the 30-year fixed rate mortgage change over time in the United States? [5 marks) (b) Discuss the possible reasons for your answer in (a) above. [5 marks) (c) Explain how information problems lead banks to lend too little to some customers and too much to others? [15 marks) (d) Briefly explain why did rising house prices prior to 2007-2009 make retail banks more willing to provide mortgages for low income earners with poor credit histories. [5 marks) Step by Step Solution
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