Subprime Loan Mortgage

1. Subprime Loan Mortgage • A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. • Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment. • Subprime loans tend to have a higher interest rate and a variable rate than the prime rate offered on traditional loans. The additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments over the life of a longer term loan.

2. Subprime Crisis: • The loans the banks gave to the people with bad credit turned into securities. • These securities were bundled and were being traded in the market. • They were given ratings and a value- but it was based upon nothing. • Once the market plummeted the banks turned to the people for payment- the people could not make the payments because the variable interest has skyrocketed. • As a result the people lost their homes, banks lost their money and government was forced to intervene.

3. efficient growth underutilized Make sure you understand underutilization, and what the shifting of the curve left and right means for a nation.

4. Equilibrium = the point at which quantity demanded and quantity supplied are equal

6. So what causes a shift in the demand curve? Income Consumer Expectations Prices of related goods Population Consumer Tastes

7. If elasticity is less than one then demand is inelastic. If elasticity is above one then demand is elastic. If elasticity is equal to then it is unitary elastic. How do we calculate elasticity? Percentage change in quantity demanded • Elasticity = Percentage change in price Percentage change Original number – New Number = 100 x Original number