Explain how a decrease in housing prices may reduce the wealth of some while increasing the wealth of others. What effect would this have on aggregate consumption?
What will be an ideal response?
A decrease in housing prices may reduce the wealth of older households and of households planning to purchase less expensive houses in the future. The decrease in housing wealth should reduce consumption of these households. A decrease in housing prices may increase the wealth of younger households that are more likely to be renters and households planning to purchase more expensive houses in the future. The decrease in housing prices means these households would have to save less from their current income to build the funds necessary to purchase a house. Therefore, wealth and consumption increase for these households. Whether aggregate consumption increase or decrease depends on the mix of households and the marginal propensity to consume out of wealth for each group of households.
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The Land Ordinances of 1785 and 1787 included provisions for all of the following except:
a. surveys prior to sale of Western land. b. the number of states that could be created from the Northwest Territory. c. guidelines for the eventual creation of Western states. d. sale of the land in plots of one square mile. e. All of the above were provisions of the ordinances.
A macroeconomist would concentrate on which of the following issues?
a. the price of pizzas b. the profits of the IBM Corporation c. the unemployment rate in Germany d. the market for hot dogs
In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that:
a) nominal income declined by more than personal income. b) the price level rose by more than nominal GDP. c) real wages declined by more than real GDP. d) the price level fell by more than real GDP.
Economically speaking, the design of Medicare
A) encourages the consumption of medical services. B) discourages the consumption of medical services. C) helps to decrease the cost of care to non-Medicare patients. D) discourages the provision of medical services.