Question

In this assignment you will apply your economics knowledge to explain and interpret a recently published economics article. You will research and select one article published within the past year that discusses an economics issue from the list provided below and explain the economics of the article. The article may be obtained from a major business or economics journal, magazine or newspaper (The Economist, Wall Street Journal, Businessweek, Times, Fortune, etc.). Using your own words as much as possible, you will explain the main points being made by the article’s author(s), the economic principles used by the author to support his/her argument, and the implications of the story. To do this, you will be applying some of the key economics concepts you have learned in Chapters 1 - 11 of your textbook, to explain the meaning and relevance of the economics story to individuals, firms and/or industry.

Answer 1

Article from The Economist - Why, despite the coronavirus pandemic, house prices continue to rise.

According to the article, unlike the decline in housing prices during the recession in 2007-2009, when the housing prices declined drastically, it is not so in the current recession as house prices have instead inched higher. It is because of a scarcity phenomenon prevalent in the economy as supply of houses is relatively less than the demand.

It is also fueled by the lowering in the interest rates as the central bank increased the overall money supply in the economy. And as the phenomenon of expansionary monetary policy is worldwide, demand for houses have increased worldwide. Thus interest rates on mortgages have declined, making it easier for consumers to borrow loans.

There is a tradeoff seen in the market as interest rates have declined at the cost of increase in house prices. However, there is a higher opportunity cost as economic activity has slowed down, and as lenders have turned more cautious. Thus the lending standards have increased.

Expansionary fiscal policy has also helped to maintain a stable level of income through wage subsidies, social transfers, etc. Thus there is demand for housing due to stable disposable incomes until the fiscal stimulus packages prevail.

Extended repayment measures followed by the government have also led to higher disposable income. Thus housing prices have increased in the face of greater demand and construction lagging behind during the pandemic.