• 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...

Introduction

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.

Middle

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.

Conclusion

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

    This leads to a change in the equilibrium point moving from E1 to E2. As the equilibrium point shifts, this makes both the wage rate and number of workers decrease, the space between Q2 and Q1 is the amount of workers who have become unemployed during the recession.

  2. 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

  1. IB Economics IA - Commentary 1 (The Effect of a GM & Chrysler Merger)

    will work out between the two automotive giants if one of the conditions that apply to the company were as follows for e.g. Company A is prospering, gaining profits and keeps a good future outlook; and sees that Company B is not doing as well and it would be in benefit for both companies if they merge.

  2. Growth and Development Problem Set - IB Economics exam questions and answers.

    and all spending on new construction (housing, etc). * Government purchases (G) - refers to all spending on goods and services by governments at levels within a country. (national, regional, etc) It also includes purchases by the government of factors of production, including labor services. * Net exports (exports minus imports, i.e.

  1. Buffer Stocks

    to increase, here the government will release the stock that was bought from previous gluts increasing supply and consequently decreasing the price so that it does not exceed the maximum price protecting the consumers. The government keeps subsidising farmers through minimum prices so that they do not leave the industry.

  2. 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?.

  1. 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.

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

    The result would be a bust in the economy. Therefore our exports are less expensive for the consumers in the other countries, because of the better exchange rate and the imports are more expensive. Then the government would react with many high injections to get a firm market.

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