Question 1

Which of the following is not an example of a flow variable?

Accepted Answer

A flow variable is one that measures the rate at which something is generated or used up over time. Options A, B, and D are all examples of flow variables because they measure a certain amount over a specific period of time (each month, each week, and each year, respectively). Option C, however, is not a flow variable because it measures a specific amount at a single point in time, rather than a rate of change over time.

Question 2

Both a price floor and a price ceiling will reduce that amount of a good that is traded in the market.

Accepted Answer

Price floors and price ceilings both create market inefficiencies by artificially altering the equilibrium price. A price floor sets a minimum price that is higher than the equilibrium price, resulting in a surplus of the good. A price ceiling sets a maximum price that is lower than the equilibrium price, resulting in a shortage of the good. In either case, the amount of the good that is traded in the market will be reduced.

Question 3

A flow variable

Accepted Answer

A flow variable measures a process that takes place over a period of time. For example, income or production is a flow variable as they occur over a specific duration.

Question 4

Gary buys a house for $200,000 using $10,000 of his own money and gets a mortgage for the remaining $190,000.If the value of the house increases 7%,what will be the percentage increase in Gary's investment?

Accepted Answer

Gary's initial investment is $10,000. A 7% increase in the house value means the house is now worth $214,000, a $14,000 increase. The percentage increase in Gary's investment is ($14,000/$10,000) * 100% = 140%.

Question 5

Nancy buys a $150,000 home using $30,000 of her own money and gets a mortgage for the remaining $120,000.If the price of the house increases 5%,what will Nancy's capital gain be?

Accepted Answer

The original value of Nancy's home is $150,000. If the price of the house increases by 5%, the new value of the home is:

$150,000 + (5% x $150,000) = $157,500

Nancy used $30,000 of her own money to buy the home, so her original equity in the home is $30,000. If the home's value increases to $157,500 and Nancy still owes $120,000 on the mortgage, her new equity in the home is:

$157,500 - $120,000 = $37,500

Therefore, Nancy's capital gain is:

$37,500 - $30,000 = $7,500

So, the best choice is D, which is $37,500.

Question 6

When analyzing the housing market,the supply curve

Accepted Answer

The answer of When analyzing the housing market,the supply curve
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Question 7

Which of the following would be an example of a flow variable?

Accepted Answer

A flow variable is a variable that measures a quantity over a period of time, such as income earned each week. Choices A, B, and D are stock variables, which measure a quantity at a specific point in time.

Question 8

A stock variable

Accepted Answer

A stock variable measures a quantity in existence at a moment in time, such as the amount of money in a bank account, the number of cars produced by a factory, or the total population of a country.

Question 9

A price ceiling will increase the amount that is traded in the market while a price floor will reduce the amount that is traded in the market

Accepted Answer

This statement is false. A price ceiling and price floor both have the potential to distort the market and reduce the quantity traded. A price ceiling may create excess demand (shortage) as it prevents the market from reaching equilibrium price and quantity, while a price floor may create excess supply (surplus) as it sets a price above the equilibrium price. In both cases, the amount traded in the market will be affected negatively.

Question 10

Which of the following is not true about the housing market?

Accepted Answer

An increase in the demand for housing will cause an increase in the price of housing (not quantity supplied) in the short run, and will eventually lead to an increase in the quantity supplied in the long run. Option A is true because the market will adjust to achieve equilibrium. Option C is partially true, as explained above. Option D is not necessarily true for all homeowners, as some may have purchased their homes outright without needing to borrow money. Option E is not true, as the supply of housing can also increase through renovations and conversions of existing properties.

Question 11

To say that the housing market is in equilibrium means that

Accepted Answer

In equilibrium, the quantity of houses that people want to own (demand) is equal to the housing stock (supply).

Question 12

If the government wants to manipulate the equilibrium price,it will normally create a price floor or price ceiling;if the government want to manipulate the equilibrium quantity,it will normally impose taxes or award subsidies.

Accepted Answer

Price floors and ceilings directly affect prices, while taxes and subsidies influence the quantity by altering supply and demand dynamics.

Question 13

Within the context of the housing market,what does MBS stand for?

Accepted Answer

MBS stands for Mortgage Backed Security, which is a type of investment that consists of bundles of mortgages, bought and sold on the secondary market. Investors can buy a portion of the mortgage-backed security, receiving a portion of the interest and principal payments made by the borrower.

Quiz 4: Working With Supply and Demand