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Question 26

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Use the following to answer questions :
Exhibit: Residential Investment Use the following to answer questions : Exhibit: Residential Investment -(Exhibit: Residential Investment) Based on the graph, if the capital market is initially in equilibrium at A with the relative price of housing equal to P<sub>H3</sub>/P and the stock of housing capital equal to K<sub>H2</sub>, then holding other factors constant, if a massive earthquake destroys a significant portion of the stock of housing capital, house prices will move to ______ and the flow of residential housing will move to______. A) P<sub>H1</sub>/P; I<sub>H4</sub> B) P<sub>H2</sub>/P; I<sub>H3</sub> C) P<sub>H3</sub>/P; I<sub>H2</sub> D) P<sub>H4</sub>/P; I<sub>H1</sub>
-(Exhibit: Residential Investment) Based on the graph, if the capital market is initially in equilibrium at A with the relative price of housing equal to PH3/P and the stock of housing capital equal to KH2, then holding other factors constant, if a massive earthquake destroys a significant portion of the stock of housing capital, house prices will move to ______ and the flow of residential housing will move to______.


A) PH1/P; IH4
B) PH2/P; IH3
C) PH3/P; IH2
D) PH4/P; IH1

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