A . When the United States experienced double-digit inflation rates in the 1970s, people routinely bought houses that were more expensive than they could easily afford. Explain their behavior. b. Mortgage companies responded to this behavior, in part, by offering variable rate mortgages, where the interest rate for the loan varies with the inflation rate. Explain their behavior
a . These buyers expected inflation to ease the burden of their house payments as time passed. Inflation
helps borrowers, because they pay back in dollars that are "less dear" as time passes.
b. Variable rate mortgages tie the size of the buyers' payments to the inflation rate, and thus help the
lenders avoid the loss of future income through inflation.
You might also like to view...
What is yield management? How is yield management being used in the airline industry?
What will be an ideal response?
Flat taxes are more equitable than graduated tax schedules.
A. True B. False C. Uncertain
Suppose a union successfully negotiates for its members a wage rate that is above the competitive wage rate, then
A) there will be a surplus of jobs. B) antitrust laws become effective. C) there will be downward pressure on the wage rate until equilibrium is established. D) there will be an excess supply of labor.
In a cartel, firms jointly act as
A) a monopolistic competitive firm. B) a perfectly competitive firm. C) a monopoly firm. D) an oligopolistic firm.