Becca’s GED Social Studies Blog

Okay. So, economics is in the news. And, guess what? It’s all mixed up with government. And don’t think this isn’t making history. Not to mention that everyone’s talking about the Great Depression, comparing this to that. So we’ve got all kinds of GED social studies going on in the real world, right now.

I’ve been trying to figure out what’s going on, and here it is, as I understand it.

So, there’ve been lots of funny mortgage loans, that banks offered to help people buy houses. Because the banks make money off loans, they want to sell as many loans as possible, right? So, there’ve been loans with small payments, but you’re not really paying all the interest on the loan plus some principle (the original loan amount), like usual, cuz the payments are so low. So, your loan balance gets bigger instead of getting smaller, if you just pay the minimum. That’s one example.

Well, so a bunch of people who wanted houses got sold these loans. Some of them thought they’d be able to resell their house later, or get a different loan, to be able to pay off their mortgage.

Okay, well, the price of houses didn’t keep going up and up and up. Because eventually, prices start going down. That meant, people were in trouble. They thought they could refinance, but they couldn’t. Maybe their payments changed because of their mortgage. Well. That meant lots of people couldn’t make their payments–people like you, maybe.

Then, what happens?

The banks don’t get paid. After selling all those loans, now the banks aren’t getting money back. And they’ve got bad debts on the books. That means, banks are short of cash. Some of them can’t pay their debts. And others are worried about making new loans, to businesses or other banks. So, banks can’t borrow money, either. Uh-oh. Money shortage. You know how that is from your own life.

Banks started to go bankrupt. Stocks crashed. Now, the government wants to step in to try to solve the problem. The idea is, the government will buy up the bad debt. Maybe they can help people be able to pay off their mortgages and make some of the money back. Of course, there’s lots of talk about what should go into the plan, like stopping big executives from walking off with a pile of dough.

So, here’s a GED question about this big mess!

According to supply and demand, what’s the most likely reason that housing prices started to fall?

A)� There was more demand for houses than supply.

B) � There was more supply for houses than demand.

C)� Supply and demand kept changing.

D)� There was too much demand for mortgages.

E)� Supply and demand do not affect price.

Got the answer?

It’s A B. (Thanks, Marie–my typo.) Supply and demand is one of the basic ideas of economics, and here it is at work. When their are too many houses and not enough buyers for them, the prices go down. And eventually, you get to that point, you know? That’s just what happens. People keep building houses, because lots of people are buying them. But, eventually, all the people looking to buy houses have bought them… or the prices get too high… and you have more sellers than buyers. More supply than demand. That’s when prices go down.

So, I’ll be keeping an eye on what’s going on to prepare for GED social studies… I tell you, this real-world stuff is the best studying.

Good studying!

For more information about the GED test and GED test preparation, visit The GED Academy at http://www.passGED.com.