MACROECONOMICS >C< W/MYECONLAB
18th Edition
ISBN: 9781323886038
Author: Pearson
Publisher: Pearson Custom Publishing
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Question
Chapter 17, Problem 4.1P
To determine
Decision, expectation, and the housing market.
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Chapter 17 Solutions
MACROECONOMICS >C< W/MYECONLAB
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- Suppose an economy has a high rate of unemployment and a high rate of inflation. What kind of policy measures would you suggest to fight inflation and increase employment?arrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point B after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point E after the change d The equilibrium will be at point E before the change in expectations and point A after the changearrow_forwardAssume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct? This means the nominal rate of interest is 7 percent and the real rate is 5 percent. This means the real rate of interest is 2 percent. The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent. This means the nominal rate of interest is 35 percent. If the rate of inflation falls, your real rate of interest from this asset would also fall.arrow_forward
- According to the neoclassical model, when the Federal Reserve implements expansionary monetary policy, a aggregate demand will decrease, price level will decrease, and output will remain the same. b aggregate demand will decrease, price level will decrease, and output will increase. c aggregate demand will increase, price level will increase, and output will remain the same. d aggregate demand will increase, price level will increase, and output will increase.arrow_forwardEconomics A recent edition of The Wall Street Journal reported interest rates of 6 percent, 6.35 percent, 6.65 percent, and 6.75 percent for three- year, four- year, five- year, and six-year Treasury notes, respectively. According to the unbiased expectations theory, what are the expected one- year rates for years 4, 5, and 6 (i. e., what are 4f1, 5f1, and 6f1)?arrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers increases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the changearrow_forward
- How can expectations about the future change what consumer buy now?arrow_forwardSuppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected.Is the real interest rate on this loan higher or lower than expected?Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose?Inflation during the 1970s was much higher than most people had expected when the decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s? How did it affect the banks that lent the money?arrow_forwardSuppose wages and prices are flexible, people form their expectations rationally, and they anticipate policy incorrectly.What happens?arrow_forward
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