Multiple choice

Directions: Read the passage/argument and answer the question that follows it.

The real estate sector in many parts of the USA is witness to a significant slump, which is attributed to high home loan mortgage rates by most realtors. They believe that in order to ease the situation, the Federal Reserve should step in and improve market liquidity so as to enable people to buy houses at affordable prices.

Which of the following, if true, would serve the most to weaken the argument offered by realtors?

  1. Home loans have shown a significant upswing after the mortgage rates were softened by many banks in some states.

  2. Several bankers believe that mortgage rate is a major factor affecting a customer's willingness to buy a home.

  3. Prospective home buyers buy homes to satisfy their desire for a world of their own.

  4. Many studies done by the University of Wisconsin show that the demand for home loans is not price elastic.

  5. Enough number of houses is available for sale especially after they were resumed by the banks after default on the mortgage taken by their owners.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option (1) tends to support the logic given in the passage by making a positive link between the demand for houses and interest rates. Thus, it is ruled out. Option (2) talks of an opinion expressed by some people, but the words believe and some render it doubtful. Options (3) and (5) are irrelevant as they talk of the homeowners' motive and availability of houses, both of which are irrelevant to this discussion. Price-inelastic demand in a certain sector means that the demand will not change as a result of change in prices. It ultimately means that even if mortgage loan rates are reduced, it will do nothing to stimulate the demand for more houses. Hence, option (4) is the right answer.

Keep practicing — related questions