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Exhibit: Residential Investment
-(Exhibit: Residential Investment) Based on the graph, if the capital market is initially in equilibrium at A with the relative price of housing equal to P_H3/P and the stock of housing capital equal to K_H2, then holding other factors constant, an economic recession that reduces national income will cause the relative price of housing to move to ______ and the flow of residential housing to move to ______.

Question

Use the following to answer questions :
Exhibit: Residential Investment

-(Exhibit: Residential Investment) Based on the graph, if the capital market is initially in equilibrium at A with the relative price of housing equal to P_H3/P and the stock of housing capital equal to K_H2, then holding other factors constant, an economic recession that reduces national income will cause the relative price of housing to move to ______ and the flow of residential housing to move to ______.

Quizplus · Accepted Answer

An economic recession that reduces national income would decrease the demand for housing, leading to a decrease in the relative price of housing and a decrease in the flow of residential housing investment. This is represented by a movement to a lower price and lower investment flow, as indicated in choice D.

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