Question

A newspaper article in the fall of 2007 reported stated​ that:

​"The luxury-home builder Hovnanian Enterprises reported its fourth consecutive quarterly loss on​ Thursday, citing continuing problems of credit availability and high​inventory."

​Source: "New Loss for Home​ Builder," Associated​ Press, September​ 7, 2007.

Hovnanian was suffering losses because

A.

they were cited for using faulty building materials from China.

B.

the CEO unwisely expanded into metals which reduced the profits of Hovnanian Enterprises.

C.

the economy was slowing down and about to head into a severe recession.

D.

the cost of production skyrocketed as more buyers were flipping houses for a quick profit.

When the article refers to​ "credit availability," it means the ability of

A.

people to use credit cards.

B.

banks to issue credit cards.

C.

banks to obtain credit.

D.

people to obtain credit.

Problems of credit availability would affect a homebuilder such as Hovnanian Enterprises because

A.

Hovnanian Enterprises must offer credit to homebuyers.

B.

the Federal Reserve will limit the number of new houses when there is a recession.

C.

banks partner with builders and if banks​ can't get​ credit, homes​ can't be built.

D.

most potential homeowners need mortgages to buy homes.

Answer 1

(1) (C)

High inventory arises when aggregate demand falls due to recession, lowering the demand for housing.

(2) (D)

When people get credit, they can purchases goods and services with the credit amount.

(3) (D)

Since many people buy houses using mortgage loans, a fall in credit availability will decrease the demand for houses.