What is a mortgage? What were the important developments in the mortgage market during the years after 1970?
What will be an ideal response?
A mortgage is a loan a borrower takes to buy a house. Prior to 1970, mortgages were not considered securities—financial assets that are sold in secondary markets. After 1970 Congress helped to create a secondary market in mortgages in order to help the housing market. Congress created the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). These institutions sell bonds to investors and use the proceeds to buy mortgages from banks and savings and loans. By the 1990s, these developments led to a large secondary market for mortgages.
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Effectively managing aggregate demand in order to stabilize nominal GDP requires
A) policy makers to know the size of the gap between current demand and demand at equilibrium. B) only that policy makers know what level of aggregate demand is necessary for full employment. C) successful economic forecasting. D) that nominal GDP be the same as real GDP. E) very little information about the economy because the market system is an efficient generator of high-quality information.
Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect ________ as well as aggregate demand and that fiscal policy is ________.
A. consumption; too flexible B. potential output; offset by automatic stabilizers C. potential output; not flexible enough D. consumption; offset by automatic stabilizers