Readers Question: Evaluate policies which a government could adopt in response to falling behind mortgage payments The problems of mortgage defaults are explained here What can the government / monetary authorities do? Cut interest rates. The MPC can cut interest rates as long as inflation is not a problem. However, the government do not set …
The Spanish economy is facing many difficult challenges. Housing Boom and Bust. Despite a relatively prudent banking sector, Spain experienced a real boom in the housing market. This was partly caused by foreign demand for holiday homes. House prices rose and there was also a boom in construction. Construction accounted for a large part of …
Readers Question: You commented, “In the case of RBS they bought a stake in Amro a Dutch bank with heavy exposure to the US subprime market. Therefore RBS has had to write off a record £28bn and are now facing nationalisation” What exactly is nationalisation and is it a good or bad thing for a …
Has the internet made price discrimination more difficult or easier? Price discrimination is charging different prices to different groups of consumers for the same good. Price discrimination requires that firms Can separate markets into different distinct groups Groups have different elasticities of demand The firm can prevent resale The costs of separating markets are less …
A pyramid investment scheme is one based on false accounting. It is one of the oldest tricks in the book. If you put money into an investment scheme they will take your money and invest it in a variety of shares / commodities / bonds e.t.c. The hope is that the investment fund will choose …
Readers Question. I was just reading the wiki page about Commercial Paper and I understand the gist of it; however, one thing that always confused me about it is: Since commercial paper is a cheaper alternative to a bank line of credit for companies to finance their daily operations, wouldn’t it make sense to just …
Yesterday, I wrote this piece on the demand for housing Usual demand curve Basically we noted the phenomena that rising house prices often cause an increase in demand and falling house prices cause lower demand. This seems to contradict the basic law of demand. But, I suggested this was due to shifts in the demand …
Readers Question Can you tell me: Is speculation on a hot real estate market a counterexample to the law of demand or indirect evidence of it? The Law of Demand One of the first things you learn in economics is the basic law of demand – When prices rise, people buy less. When prices fall, …