Suppose lenders suddenly think that mortgage loans are more risky than before. T

Question

Suppose lenders suddenly think that mortgage loans are more risky than before. The mortgage interest rate rises very rapidly, and the spread between the mortgage interest rate and the federal funds rate changes rapidly as well. Investment spending on new housing starts to decline, possibly setting off a recession. What can the Federal Reserve ( "the Fed") do to rein in the rising mortgage interest rate without changing the other interest rates in the economy? Lower the federal funds rate Start buying mortgage-backed securities Increase the money supply by buying government bonds

Explanation / Answer

sorry its start buying mortgage-backed securities

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