You Notice That When Interest Rates Increases, New Residential Housing

question 144

Multiple Choice

You notice that when interest rates increases, new residential housing prices tend to decrease. This observation indicates that

• A) there must be false causality between interest rates and housing prices.
• B) higher interest rates must cause low housing prices.
• C) a scatter diagram between interest rates and housing prices will show a negative relationship.
• D) a scatter diagram between interest rates and housing prices will show a direct relationship.

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Definitions:

Favorable Supply Shock

An unexpected event that suddenly increases the supply of a product or service, resulting in decreased prices and increased quantity.

Short-run Phillips Curve

The short-run Phillips Curve represents the inverse relationship between inflation and unemployment in an economy over a short-term period.

Unemployment

The situation when individuals who are capable of working are not able to find a job despite actively seeking work.

Sacrifice Ratio

The measure of economic costs associated with reducing inflation through monetary policies, typically represented as the loss in output per percentage point decrease in inflation.