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

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Economics

Suppose home owners owe $10 trillion in mortgage loans.
Instructions: Enter your responses as a wholenumber. In part b, do not include a negative sign (-) with youranswer.
a. If the mortgage interest rate is 5 percent, approximately howmuch are home owners paying in annual mortgage interest?
Â Â Â Â $Â Â billion
b. If the interest rate drops to 2 percent, by how much willannual interest payments decline?
Â Â Â Â $Â Â billion
c. How will this change in the interest rate impact aggregatedemand?
Â Â Â Â Aggregate demand willÂ Â (Clickto select)Â Â notchangeÂ Â increaseÂ Â decreaseÂ Â .

Answer & Explanation Solved by verified expert

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Solution:-

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

Annual mortgage interest amount = 5% * 10 trillion

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 0.05 * 7 trillion

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 500 billion

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

Annual mortgage interest amount declines = 2% * 10 trillion

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 0.03 * 7 trillion

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = $200 billion

c) Aggregate demand will increase

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