Holding other factors constant, a decline in the real interest rate will ______ the price of housing and ______ the flow of residential housing investment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

A decline in the real interest rate reduces the cost of borrowing, which tends to increase the demand for housing, raising housing prices. Additionally, lower interest rates make financing new residential investments more attractive, leading to an increase in housing investment.

Holding Other Factors Constant, a Decline in the Real Interest