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) a scatter diagram between interest rates and housing prices will show a negative relationship.
C) a cross- section graph between interest rates and housing prices will show a negative relationship.
D) higher interest rates must cause low housing prices.

Question

Quizplus · Accepted Answer

The observation indicates that there is a negative relationship between interest rates and housing prices. When one variable increases, the other variable decreases. A scatter diagram would show the pattern of this negative relationship. False causality and cross-section graphs are not relevant to this observation. The statement in option D is not necessarily true, as there may be other factors affecting housing prices besides interest rates.

You Notice That When Interest Rates Increases, New Residential Housing