• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

IB Economics IA - Commentary 2 (Mortgage Rates Down)

Extracts from this document...


Mortgage rates down The global financial crisis is multiplying its effects to many sectors of the economy beginning with failures of large financial institutions of United States. The effects of this crisis have been prominently been visible with some factors such as large reductions in stocks, higher inflation rates, higher unemployment rates, and numerous bank failures. The decrease in mortgage rates has been a result from the chain cycle of the global financial crisis that has been following on. To begin with, higher inflation rates have had adverse effects on the economy. It has caused more risk averse and has discouraged investment and saving which in turn has caused consumer confidence to go down. Therefore, price inflation has caused the power of money to go down as consumers have to spend more for the same product/result. Overall, the consumers want to borrow more attempting to cut down their spending (loss of consumer spending), however no changes (specifically increases) had been made to the money supply thereby the interest rates had increased. ...read more.


The occurrence of this situation (falling mortgage rates) is a solution to the falling GDP. The mortgage rates have been dropped which is likely to increase aggregate demand which overall will also increase real GDP and reduce unemployment. Otherwise, there many exogenous factors that affect mortgage rates amount of down payment, the income of the mortgage borrower, total mortgage loan amount, the life of the mortgage rate and many others however there are limited factors that are significant to this situation - the income of the borrower and the duration of the mortgage rate. The income of the borrower is an essential requirement and has great affect on the interest rates as it determines if the consumer is able to pay back what they borrowed. The duration of the interest is essential (very significant to this situation) - the long term interest rates have also been decreased as this will help bring up the consumer confidence (consumers feel they are being offered a low interest rate for a long term). ...read more.


Christopher Dodd, D-Conn. A recent survey of senior loan officers from the Federal Reserve found that about 70% of banks raised their lending standards for prime mortgages, and about 90% of banks that offer nontraditional mortgages did so as well. In September, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) were on the brink of failure, having racked up nearly $12 billion in losses from declining home prices, mortgage delinquencies and foreclosures. Federal officials assumed control of the firms and the $5 trillion in home loans they back. The Treasury put up as much as $200 billion to bail them out and placed them in a temporary "conservatorship" overseen by the Federal Housing Finance Agency. -- CNNMoney.com senior writer Tami Luhby contributed to this report. 1 The total demand for output of all goods and services usually compared to price levels 2 The total amount of output supplied by all producers in an economy all together usually compared with price levels 3 The ability to have ready access to invested money by an economy or the ability of a market to accept large transactions (the flow of money) ?? ?? ?? ?? ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Unemployment IA

    The recession caused aggregate demand to fall, meaning that consumers are spending less money on goods and services.

  2. The Economics of Housing. Factors affecting prices and demand.

    It same increase in all the year till 2008 then there is a slight decrease of prices. House prices fall by4.3% in the 2nd quarter of 2008. Annually the house price fall by7.3%in London and 6.1%in all UK. IDENTIFICATION OF BACKGROUND FACTORS: A House price in UK changes in different reasons.

  1. Economics HL - IA

    will eventually increase, leading to a lower price, thus a greater quantity demanded. Overall, this scenario is a great example of how the hidden forces of supply and demand exert its forces and thereby is guided toward the equilibrium. Commentary number #2 Title of extract "Viable post-Kyoto approach" Source of

  2. World Economics assignment. The core economic issues that are focused on in this ...

    To the business, utilizing a single currency intensifies stiff competition among members within EU. By the contrast, it also provides corporations with increasingly opportunities and possibilities of expansion, so that these firms could produce their product to wider within EU.

  1. Macroeconomics IA South Korea inflation at threeyear high on food price jump

    However, the article states that ?The bank of Korea has raised interest rates three times this year in a bid to control rising consumer prices? and therefore they don't want to raise them again- ?It will therefore be tough for the Bank of Korea to raise interest rates this month?.

  2. IB economics commentary - Inflation

    Consumers with higher incomes will benefit from the fall in prices of non-food products as they will be left with more disposable income for food and commodities. Consumers with lower incomes, however, already spend a very large part of their disposable income on food and durable product price reduction does not affect them in any way.

  1. Identify the components of Aggregate Demand. Explain the impact on an economy of ...

    Therefore the first consequences would here be that the housing market decreases, because less people are able and willed to buy a house with such high interest rates, which in turn decreases the consumers? confidence and also reduces their

  2. Demand and Supply IA

    Another viewpoint on the continuous growth of demand for cotton is that the ?available cotton stocks? were remaining ?at low levels?. Stocks are the total quantity of a commodity that exists in a market. In addition, with cotton exports increasing, the supply base for U.S is estimated to also increase

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work