ECON1110_HW4 - Introductory Microeconomics ECON 1110...

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Introductory Microeconomics – ECON 1110 Homework Assignment #4 The homework assignment is due at the start of class on Tuesday, Oct 28.  You are permitted to  work in small groups, but you must submit your individual answers.  Please be neat, or else you may  not receive full credit.  On any graphs you must correctly label all axes with the appropriate units of  measure.  Note that unless information is presented to the contrary, you can assume that the demand  curve is downward sloping and the supply curve is upward sloping. 1. Initially there are only private borrowers and lenders in the mortgage market.  The price  elasticity of demand for loans is 2. a. Draw the initial equilibrium interest rate and quantity of mortgages. At the initial equilibrium the interest rate is 10% and the total number of loans is 1 million. b. If the Federal Reserve wanted to decrease the interest rate to 8%, how many loans  would it have to supply?  Draw the new supply curve and equilibrium. (Note: the Fed  does not pass a law that makes the maximum interest rate 8%, it increases its own 
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ECON1110_HW4 - Introductory Microeconomics ECON 1110...

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