Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.
What will be an ideal response?
As the interest cost of a home mortgage is the major component of the total cost of owning a house, fewer families will want to purchase new homes as interest rates rise. Thus, higher interest rates will reduce expenditures on housing.Business investment is also sensitive to interest rates. Because the rate of interest that must be paid on borrowings is part of the cost of an investment, business executives will find investment prospects less attractive as interest rates rise. Therefore, they will spend less.
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Nonlinear least squares
A) solves the minimization of the sum of squared predictive mistakes through sophisticated mathematical routines, essentially by trial and error methods. B) should always be used when you have nonlinear equations. C) gives you the same results as maximum likelihood estimation. D) is another name for sophisticated least squares.
Under the natural rate hypothesis, expansionary monetary and fiscal policies can at best produce a:
a. permanent change in the unemployment rate. b. short-run change in the unemployment rate. c. permanent change in the inflation rate. d. short-run change in the long-run Phillips curve.
When the economy goes into a downturn what automatic stabilizer limits the downturn?
a. decreased tax revenue b. increased military spending c. increased unemployment benefits d. decreased inflation rate
Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot can offer their hammer for a minimum of $7. Lace Hardware can offer the hammer for a minimum of $10. Bob's Hardware store can offer the hammer at a minimum price of $13. Given the scenario described, if the market price of hammers increased from $9 to $13:
A. producer surplus would increase by $4 for Lace Hardware. B. producer surplus would increase only for House Depot. C. producer surplus would increase for each producer. D. producer surplus would remain unchanged for Bob's Hardware.