Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused
A) housing prices to fall during that period.
B) a reduction in the use of adjustable rate mortgages to finance the purchase of housing.
C) a reduction in housing construction during 2002-2005.
D) mal-investment, that is, excessive investment in housing construction during 2002-2005.

Question

Quizplus · Accepted Answer

The combination of regulatory policies encouraging riskier loans and low interest rates led to excessive investment in housing, contributing to a housing bubble.

Regulatory Policies Requiring Lenders to Extend More Low Down-Payment Loans