Assume that the following two events occur at the same time. Will interest rates increase or decrease? Will the quantity of borrowing/lending activity increase or decrease? You should answer these questions for each event individually, and overall. (Note: You do not have to provide a graph. You can describe how the supply or demand curves shift, and identify the effects on the interest rate).
- Young single people decide that they would rather buy suburban homes, than live in places like dreary old Manayunk. As a result, new home construction surges and mortgage applications spike.
- The FED increases the reserve requirement for all banks.