00:02
Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans.
00:10
Sketch a demand and supply diagram to support your answers.
00:14
A, the number of people at the most common ages for home buying increases.
00:18
B, people gain confidence that the economy is growing and that their jobs are secure.
00:23
C.
00:24
Banks that have made home loans find that larger number of people than they expected are not repaying these loans.
00:29
D, because of a threat of war.
00:33
People become uncertain about their economic futures.
00:36
E, the overall level of saving in the economy diminishes.
00:40
And f, the federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.
00:46
So let's start with part a.
00:51
An increase in the number of people willing to buy homes will increase the demand for home loans in the financial market.
01:49
Our supply and demand graph is going to look like this.
01:54
This is the quantity of home loans, and this is the interest rate.
02:17
This is our demand.
02:20
This is our supply.
02:22
The increase in the number of people willing to buy homes does not affect the supply of homes.
02:26
It shifts the demand.
02:29
So we end up out here at our demand.
02:32
And originally, if we look at this right here is our equilibrium.
02:40
So here is q1, quantity one, with.
02:43
Interest rate one.
02:45
And we can see now that when we shifted that demand out, because it increased, our interest rate went up, and so to the quantity.
02:55
So we end here.
02:59
As shown in this graph, an increase in the demand for homeowners will shift the demand curve of homeowners rightward from d to d1, and a quantity of hormone increase from quantity one to quantity two, and interest rate rises from interest one to interest two.
03:25
Part b, if people know that their jobs are secured, that would mean that the demand for loans rises because people have the confidence of paying the loan amount and interest rate.
04:46
So our supply and demand graph, we're on this side, we have the interest rate, and on the x -axis, we have quantity of homes.
05:10
Specifically, we have quantity of home loans.
05:16
This is my demand.
05:19
That's my original supply.
05:22
And we're again going to see this shift in this demand.
05:25
We're going to have an increase in demand.
05:27
So we go from d to d1.
05:29
And that affects our equilibrium.
05:31
So we started right here.
05:34
Here's our first interest rate with our first quantity.
05:41
And it shifts out and raises the quantity of home loans as well as the interest rate.
05:54
Part c, an increase in the number of defaulters...