From the residential arbitrage equation, a rise in the down payment will ________ the price of the house, while an increase in the real interest rate will ________ the house price.
A) reduce; raise
B) raise; reduce
C) reduce; reduce
D) raise; have no effect on
E) raise; raise

Question

Quizplus · Accepted Answer

A rise in the down payment reduces the price of the house because it increases the initial cost for buyers, potentially lowering demand. An increase in the real interest rate reduces the house price as it raises the cost of borrowing, also potentially lowering demand.

From the Residential Arbitrage Equation, a Rise in the Down