Question

In: Economics

Suppose home owners owe $10 trillion in mortgage loans. Instructions: Enter your responses as a whole...

Suppose home owners owe $10 trillion in mortgage loans.

Instructions: Enter your responses as a whole number. In part b, do not include a negative sign (-) with your answer.

a. If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest?

$ billion

b. If the interest rate drops to 2 percent, by how much will annual interest payments decline?

$ billion

c. How will this change in the interest rate impact aggregate demand?

Aggregate demand will (Click to select) not change increase decrease .

Expert Solution

Solution:-

(a) Calculate the amount that home owners pay in annual mortgage interest -

Annual mortgage interest amount = 5% * 10 trillion

= 0.05 * 7 trillion

= 500 billion

(b) Calculate the amount that home owners pay in annual mortgage interest -

Annual mortgage interest amount declines = 2% * 10 trillion

= 0.03 * 7 trillion

= $200 billion

c) Aggregate demand will increase

Rahul Sunny answered 7 months ago

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