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question 66

Essay

Figure 10.2 shows the U.S. housing price index (solid line, left axis) and one year adjustable mortgage rates-a proxy for subprime loans (dashed line, right axis). In the context of the housing and financial crisis, discuss the relationship between these two series.
Figure 10.2: Housing prices and one-year adjustable mortgage rates
(Source: Federal Reserve Economic Data, St. Louis Federal Reserve)

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