During the recession phase of the business cycle, households become pessimistic about their future earning capacity as do banks. Nominal interest rates fall during recessions. Mortgage lending could be expected to
A) rise if the change in future earnings is thought to be greater than the change in interest payments.
B) stay the same.
C) fall.
D) fall if the change in future earnings is thought to be greater than the change in interest payments.
D
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Recall the Application. If country A has a lower overall income tax rate than country B, and labor can freely and easily move between the two countries, ________ in country B will tend to ________
A) labor supply; decrease B) labor demand; decrease C) labor demand; increase D) labor supply; increase
If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher U.S. interest rate
A) decreases the demand for dollars. B) increases the demand for dollars. C) has no effect on the demand for dollars. D) will stop all trading between the currencies of the U.S. and other countries.
If the rate of return is lower than the cost of borrowing the:
A. borrower will make money by taking out the loan. B. investor will lose money on net after paying back the loan. C. savers will lose out by taking a loan. D. investor should take out the loan.
Exhibit 3A-2 Comparison of Market Efficiency and Deadweight Loss
As shown in Exhibit 3A-2, if the market price falls from P2 to P3, then:
A. total surplus increases. B. deadweight loss decreases. C. overproduction increases. D. underproduction decreases.