If Consumers Use Their House as Collateral for Lending and the Value

question 3

Multiple Choice

If consumers use their house as collateral for lending and the value of housing in general falls,then

• A) lending is unchanged and future consumption increases.
• B) borrowing increases further to maintain current consumption.
• C) lending and aggregate consumption decrease.
• D) lenders prefer to become borrowers.
• E) lending and aggregate consumption increase.

---

Definitions:

M1

M1 is a category of the money supply that includes all physical currency and coin, demand deposits, traveler's checks, and other checkable deposits.

M2

An indicator of the total money available within an economy that encompasses physical currency, funds in checking accounts, and assets closely resembling cash, like savings accounts and investments in money markets.

Demand Deposits

Bank accounts that allow the holder to withdraw funds without advance notice, often used for day-to-day expenses.

Federal Reserve Bank

One of the 12 regional banks of the Federal Reserve System, each serving a specific geographic area of the United States, involved in banking and monetary policy.