Author Question: Some economists argue that there were good reasons for housing price to rise. Explain their ... (Read 46 times)

Lisaclaire · **on:** Jun 30, 2018

Some economists argue that there were good reasons for housing price to rise. Explain their argument.

What will be an ideal response?

Question 2

A reduction in consumer confidence will likely have which of the following effects?

A) a rightward shift in the IS curve
B) a leftward shift in the IS curve
C) an upward shift in the LM curve
D) a downward shift in the LM curve

Sammyo · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

First, the real interest rate was decreasing, increasing the present value of rents. Second, the nominal interest rate was also decreasing, and this mattered because nominal interest payments are tax deductible. Third, the mortgage market was changing: More people was able to borrow and buy a house; people who borrowed were able to borrow a larger proportion of the value of the house. Both of these factors led to an increase in demand, and thus an increase in house prices.

Answer to Question 2

B