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
The transfer of wealth from developed countries to oil exporting countries (abbreviated as OPEC) which followed sky-rocketing oil prices in the year 1970s points out that the price elasticity of demand for oil was: (i) Unitary. (ii) Relatively high. (
Voluntary unemployment: It refers to a condition when person are not willing to do work at customary market wage rate, though they are receiving a work.
What is the role of price in market economies?
Define bank rate policy? How does it operate as a technique of credit control? Answer: Bank rate is the rate at which the central bank provides loans to the commerc
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
How will you treat the given in estimating rational income of India? Provide reasons for your answer. (i) The value of bonus shares received by the shareholders of a company.(ii) Interest received on loan pro
The equilibrium interest rate is determined
Cite examples of recent decisions that you made in which you, at least implicitly, weighed marginal cost and marginal benefit?
What is "demand-pull" inflation?
What does fiscal deficit in government budget mean? Answer: This means more borrowing on the portion of government.
18,76,764
1932523 Asked
3,689
Active Tutors
1449752
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!