Why did a decline in mortgage rates in the 1990s cause the velocity of M2 to fluctuate?
What will be an ideal response?
When mortgage rates fall (as they did in the 1990s) people pay off their old high-rate mortgage by obtaining new mortgages at lower rates. When a mortgage is refinanced it can add to the demand for money in several ways. Many people remove part of the equity in their home when they refinance and deposit these funds into their liquid accounts which are part of M2 where they are held until they are spent. Also, when mortgages are refinanced, funds flow from the new investors to the holders of the old mortgages. These funds flow through accounts that are part of M2. So when mortgage rates fall M2 can grow substantially, when they stabilize, M2 stabilizes or shrinks. In the meantime though, velocity has fluctuated.
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In India last year, the growth rate of real GDP was 3.5 percent and the population grew from 1,000 million people to 1,100 million. Real GDP per person
A) increased by 13.5 percent. B) decreased by 6.5 percent. C) increased by 6.5 percent. D) decreased by 13.5 percent. E) increased by 3.5 percent.
Define official settlements account and U.S. official reserves. Discuss the differences between the two terms
What will be an ideal response?
Consider the two graphs above. Suppose that improvements in technology enable farmers to produce two or more harvests of the same crop each year. This would ________ the desired level of inventories, as depicted in graph ________
A) increase; B B) increase; A C) decrease; B D) decrease; A
Firms should stop borrowing funds
A. as soon as the bank raises the interest rate. B. when the MRP of borrowed funds is equal to the cost of borrowing. C. whenever the future of the firm looks gloomy. D. if their debts are more than 25 percent of the value of the firm.