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.

Question

Quizplus · Accepted Answer

Higher interest rates increase the cost of borrowing, which can reduce the demand for new residential housing, leading to lower prices. A scatter diagram showing interest rates and housing prices would illustrate this inverse relationship, with higher interest rates associated with lower housing prices, hence a negative relationship.

You Notice That When Interest Rates Increases, New Residential Housing