Assume the U.S. is a closed economy and that it is starting out in both SR and LR equilibrium. Assume that not all prices are sticky. The Fed has been raising interest rates the last few months and will likely continue to do so. One result of this is that home loan (mortgage) rates have shot up from < 3% to over 7%, sending house prices across the U.S. lower (on average). Banks are also seeing loan default rates increase (not just for home loans, but for all loans) and are being more cautious about the loans they make and are increasing the amount of money they set aside to handle the expected loan defaults. A. Using appropriate graph(s), show and explain the short-run impact(s) of the events described above on the U.S. economy. B. Using just an AD/AS graph (and starting from your result in A), show and explain what happens in the long run. Put your new graph and explanation below
Assume the U.S. is a closed economy and that it is starting out in both SR and LR equilibrium. Assume that not all prices are sticky. The Fed has been raising interest rates the last few months and will likely continue to do so. One result of this is that home loan (mortgage) rates have shot up from < 3% to over 7%, sending house prices across the U.S. lower (on average). Banks are also seeing loan default rates increase (not just for home loans, but for all loans) and are being more cautious about the loans they make and are increasing the amount of money they set aside to handle the expected loan defaults. A. Using appropriate graph(s), show and explain the short-run impact(s) of the events described above on the U.S. economy. B. Using just an AD/AS graph (and starting from your result in A), show and explain what happens in the long run. Put your new graph and explanation below
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume the U.S. is a closed economy and that it is starting out in both SR and LR equilibrium. Assume that not all prices are sticky. The Fed has been raising interest rates the last few months and will likely continue to do so. One result of this is that home loan (mortgage) rates have shot up from < 3% to over 7%, sending house prices across the U.S. lower (on average). Banks are also seeing loan default rates increase (not just for home loans, but for all loans) and are being more cautious about the loans they make and are increasing the amount of money they set aside to handle the expected loan defaults. A. Using appropriate graph(s), show and explain the short-run impact(s) of the events described above on the U.S. economy. B. Using just an AD/AS graph (and starting from your result in A), show and explain what happens in the long run. Put your new graph and explanation below
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