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
If households become more willing to hold less cash and more stocks or bonds, the
Predictions which restricting international trade to protect specific industries and “infant” firms would (a) inefficiently decrease aggregate output and employment, (b) raise the market power of the protected firms and their workers, and
Question: How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world, investment in both economi
Hello. I need help with my assignment, I was sick and lost alot of time.My submission deadline is tomorrow i need your help i have attached the questions Thanks in advance
Can anybody suggest me the proper explanation for given problem regarding problem of scarcity in economics generally. The problem of scarcity means that the origin for each economic activity is to: (v) facilitate s
The value of nominal GNP of an economy was Rs. 2,500 crores in a specific year. The value of GNP of that country throughout the same year, computed at the prices of some base year was Rs.3000 crores. Evaluate the value of GNP deflator of the year in terms of percentag
People will purchase goods when their demand prices equivalent or surpass: (i) Transaction costs. (ii) Subjective prices. (iii) Price indexes. (iv) Market prices. (v) Wholesale prices. Please someone suggest me the right answer.
What is the alternative name of value added technique of estimating national income? The alternative name of value added technique of estimating national income is production method.
Relevance of matter: Relevance of matter is very much important while choosing any goals. Are the goals relevant to the vision of the company? A goal of having maximum number of customers seems fantabulous, however at the same time bank needs to make
What relationship does the MPC bear to the size of the multiplier? The MPS? What will the multiplier be when the MPS is 0, .4, .6, and 1
18,76,764
1944228 Asked
3,689
Active Tutors
1412756
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!