Why is residential investment procyclical?
What will be an ideal response?
Cyclical fluctuations of income and expected income dominate the demand for housing. The user cost of housing is composed of procyclical elements — the real interest rate and the relative price of housing — which would counter the cyclicality of residential investment. But these cost determinants (as well as the procyclical cost of construction) are overwhelmed by expected changes in the relative price of housing. Residential investment is neither deterred by a boom nor revived during a slump. Rather, it thrives during a boom and languishes until the slump has passed.
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Based on the above table, an open market operation in which the Fed purchased $100,000 of government securities would
A) lead to a maximum potential expansion of the money supply of $1 million. B) create a reserve deficiency for the banking system. C) cause demand deposits to fall by $100,000. D) lead to a maximum potential expansion of the money supply of $100,000.
When the total external and internal costs of a transaction are taken into consideration, this is known as
A) public costs. B) average total costs. C) social costs. D) marginal costs.
Economic growth, as measured by increases in real GDP per-capita, was at its strongest during the
A. 1990s. B. 1960s. C. 2010s. D. 2000s.
In 2009, household spending was the smallest component of total spending in the U.S. economy
a. True b. False Indicate whether the statement is true or false