Which of the following resulted from Fed policy that first kept short-term interest rates extremely low during 2002-2004, and then pushed them up substantially during 2005-2006?
A) a reduction in housing prices because variable rate mortgages were unattractive throughout this period
B) upward pressure on housing prices when the interest rates were low, but downward pressure on the price of housing as the interest rates rose
C) lower default rates on adjustable rate mortgages as the interest rates peaked during 2006
D) downward pressure on housing prices when the interest rates were low, but upward pressure on the price of housing as the interest rates rose

Question

Quizplus · Accepted Answer

Low interest rates during 2002-2004 made borrowing cheaper, leading to increased demand and upward pressure on housing prices. When rates rose in 2005-2006, borrowing costs increased, reducing demand and putting downward pressure on housing prices.

Which of the Following Resulted from Fed Policy That First