8/12/2019 Banking CFU

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Dame, Kuszyk

1a. Rent control is destructive for cities and populations because, eventually, it leads tomany of the building owners deserting their rented buildings. Also, people who didn't needthe subsidies of rent control started taking advantage of it. For example, people were paying

1/5 of a $10,000 rent solely because of the rent control prices. Finally, because everythingelse's price rises during the year the price of maintaining building becomes more expensive,but when you can't raise rent prices it becomes cheaper to abandon the building than stillowning it and collecting rent. This led to many buildings in NYC becoming condemned.

1b. The Nixon administration, faced with very high inflation (4%) and public outcry, decidedto put a lockdown on the entire market for 90 days.This fixed all prices and wages, and itworked. But as soon as the controls came off, the price levels continued to increase. Nixonsubsequently put a price ceiling beef, pork and lamb. The idea was good in theory, but itdidn't work as farmers withheld their livestock from market due to the lower prices from theprice ceiling, and the U.S. had a high demand that couldn't be met by the supply. Price

controls don't really work, except under specific circumstances such as WW2, when peoplewere willing to accept giving up some of their daily comforts because of their patriotic spirit.Part 3 talks about rent control in New York city, most of which is already covered in 1a.

2. There is an up sloping supply curve and a down sloping demand curve. This is becauseas the price rises, people want to buy less but as the price rises companies want to sell moreto make more profits. Where the lines intersect is he equilibrium point which the graph willreturn to.

3. The new price level from rent control will intersect the supply and demand curves lower onthe graph than the equilibrium point. This causes a decrease in supply, and an increase in

demand, and there were not nearly enough. This is a price ceiling, as it sets a maximumprice (ceiling) that is lower than the equilibrium point.

4. The original Nixon price ceiling was nothing more than a temporary fix, it didnt tackle theunderlying problems that caused the rapid inflation. The price ceiling on beef and othermeats was detrimental, and benefitted no one (civilians wanted meat but t here wasntenough, farmers wouldnt sell meat at the low prices. The full control of the economy in WW2could work again, but it couldnt be done halfway. The economy would have to be fullycontrolled, and Americans would need a very good cause to agree to such a governmentalcontrol.