Discount rate-Prime rate and the Subprime rates of interest
What is the difference among the discount rate, prime rate and the subprime rates of interest? Which interest rate in particular build the 2008 recession? Explain how that happened.
Expert
Discount rate refers to that interest rate which would be charged by the Federal bank to the depository institutions for borrowing its reserves. Prime rate refers to that which banks charge the creditworthy customers and is just 3 percentage points over fed funds rate. When the creditworthiness lowers, the interest rate increases. Subprime rates refer to those charged on subprime loans offered to the less creditworthy customers. Both prime and subprime rates are charged on all loans offered by banks and differs based on the creditworthiness of the customer. Subprime interest rates created the 2008 recession. Sales of single family homes peaked in 2005, with the increase in population as well as the need for home ownership, which resulted in a housing boom leading to rocketing home prices. As the prices surged upwards drastically, homes became more expensive and the subprime interest rates were also high. Subprime loans with adjustable rates, extremely low or no down payments, etc were offered and borrowed with the hope that they can be paid off when the prices escalate more. However, owing to fraudulent transactions, subprime mortgage defaults emerged, which led to the fall in home sales in 2006 which eventually led to the end of price escalation. With the prices much lower than the purchase price, more and more mortgage loans were defaulted, which led to the failure and shutdown of a few well-known banks. Thus this created the 2008 recession
Explain in short the income approach to evaluate national income. Answer: Under income method to compute the National Income, the steps given below have been taken into account: A) First of all production units tha
Read the article on blackboard in the assignments area, John McCallum "Agriculture and economic development in Ontario and Quebec until 1870", Gordon Laxer, ed. Perspectives on Canadian Economic Development: Class, Staples, Gender and Elites (Toronto: Oxford Universit
The direct economic resources a farmer employs to generate avocadoes would not comprise: (I) human capital in form of expertise regarding growing avocadoes. (II) fertile land. (III) loans from a bank to finance SUCH year’s crop. (IV) machinery,
Describe when there will be a surplus of the good?
State main sources of demand for foreign currency? Answer: The four main sources of demand for foreign currency are as follows: A) To buy services and goods from other countries. B) To send a gift abroad.
When heroin were legalized, in that case the: (w) market price of heroin would drop considerably. (x) demand would raise although supply would decrease. (y) demand would decrease but supply would increase. (z) price of cocaine would raise. Q : Economic Economic systems differ Economic systems differ according to which two main characteristics?
Economic systems differ according to which two main characteristics?
Suppose the value of exports of goods of a country is Rs. 1,000 crores and the value of imports of goods is Rs. 1,200 crores, what will be the trade balance (or balance of trade)?
‘What occurs in the money market when there is a raise in income?’
Open-Economy Macroeconomics Suppose the structure of an economy with a flexible exchange rates is represented by: C = 200 + 0.85*(Y - T) &n
18,76,764
1928154 Asked
3,689
Active Tutors
1431301
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!