Employment in a one-industry town falls 20%. Through what mechanism does housing demand contract?
Correct Answer
B) Household formation and purchasing power shrink together
Why this is correct: Housing demand is derived from employment and household income. A 20% job loss reduces in-migration, household formation, and the purchasing power of remaining residents, contracting demand. Why the other choices are wrong: Construction costs may decline, but that's a supply factor. Physical deterioration is not directly accelerated by job loss. Interest rates are set by broader monetary policy, not local job changes. Exam tip: Jobs and income drive housing demand.
Why This Is the Correct Answer
Why this is correct: Housing demand is derived from employment and household income. A 20% job loss reduces in-migration, household formation, and the purchasing power of remaining residents, contracting demand. Why the other choices are wrong: Construction costs may decline, but that's a supply factor. Physical deterioration is not directly accelerated by job loss. Interest rates are set by broader monetary policy, not local job changes. Exam tip: Jobs and income drive housing demand.
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