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# In January there was a large drop in the number of new

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Senior Manager
Joined: 08 Sep 2004
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Location: New York City, USA
In January there was a large drop in the number of new [#permalink]

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09 Apr 2006, 15:30
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In January there was a large drop in the number of new houses sold, because interest rates for mortgages were falling and many consumers were waiting to see how low the rates would go. This large sales drop was accompanied by a sharp rise in the average price of new houses sold.
Which of the following, if true, best explains the sharp rise in the average price of new houses?

(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
(B) Labor agreements of builders with construction unions are not due to expire until the next January.
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.
(E) Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate.

Regards,
Vipin

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VP
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09 Apr 2006, 15:43
I wud vote for A

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Senior Manager
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Re: CR - Interest Rates [#permalink]

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09 Apr 2006, 16:17
vipin7um wrote:
In January there was a large drop in the number of new houses sold, because interest rates for mortgages were falling and many consumers were waiting to see how low the rates would go. This large sales drop was accompanied by a sharp rise in the average price of new houses sold.
Which of the following, if true, best explains the sharp rise in the average price of new houses?

(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
Looks ok
(B) Labor agreements of builders with construction unions are not due to expire until the next January.
Out of scope.
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.
If this is the case then prices wouldn't have rose sharply in January.
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.
It willl cause drop of price.
(E) Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate.

Against the argument.
Regards,
Vipin

So A by POE

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Manager
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09 Apr 2006, 16:24
A for me

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09 Apr 2006, 16:28
Any explanation for your answeres guys?

Thanks

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VP
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Re: CR - Interest Rates [#permalink]

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09 Apr 2006, 17:15
vipin7um wrote:
In January there was a large drop in the number of new houses sold, because interest rates for mortgages were falling and many consumers were waiting to see how low the rates would go. This large sales drop was accompanied by a sharp rise in the average price of new houses sold.

Which of the following, if true, best explains the sharp rise in the average price of new houses?

(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
(B) Labor agreements of builders with construction unions are not due to expire until the next January.
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.
(E) Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate.

A.
i think this question is testing the law of demand i.e when price rises demand falls and vice versa. but there are some exceptions to this law, which doesnot apply to the most expensive and luxarious items. this is the reason that the sale of higher-priced houses didnot decreased. and this sale helped off-set the decrease in housing sale and increase the avg. price of the houses.

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Senior Manager
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10 Apr 2006, 09:46
One more for 'A'.

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10 Apr 2006, 09:46
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# In January there was a large drop in the number of new

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