In November of 2010, the US Central Bank, the Federal Reserve, embarked on a policy of quantitative easing. Since this policy essentially represents an increase in the supply of money, it may create inflationary expectations. Let’s assume (and this is a strong assumption), that as a result of this polic y, US households start to expect inflation (price increases) in the housing market. The effect on the housing market will be:

A rise in the demand, causing prices to increase

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A rise in the supply, causing prices to decrease

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A decline in the demand, causing prices to decrease

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None of the above

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Solution

The correct option is A
A rise in the demand, causing prices to increase

People, because of fear of hike in prices, will demand more at the current prices, causing a shortfalll in supply and a consequent increase in prices.

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The correct option is A A rise in the demand, causing prices to increase People, because of fear of hike in prices, will demand more at the current prices, causing a shortfalll in supply and a consequent increase in prices.

The correct option is A
A rise in the demand, causing prices to increase

People, because of fear of hike in prices, will demand more at the current prices, causing a shortfalll in supply and a consequent increase in prices.