Question

the idea of imposing higher minimum required down payments on: a. cars b. homes and condos c. ‘consumer durables’----all in an effort to raise the long term household savings rate. In each case, is each idea a good idea or a bad idea? In each case, which groups of workers in our economy may be in a position to lose income, at least in the short run? In each case, which groups in our economy may stand to gain? How? Why?

Answer 1

Down Payments- Minimum Requirement
The minimum requirement feature of EMI payment has different effects on different income groups. The one who have a better ability to bare a high minimum requirement of down payment have a drawback of loosing higher disposable income for the short run when compared but have an advantage of gaining or saving the income in the long run as their income which they may lose as interest is less than the other option of paying lower down payment. When the option of lower down payment will not reduce much of your short run disposable income, it will leads to increased payment on interest in the long run. A less down payment will demand for a higher amount of loan which will further demand for a higher interest payment when compared to the other with lower loan amount.
The lowest requirement of down payment is good for people with low level of income since the higher requirement can surely affect their short run disposable income which they cannot suffer. But they have to suffer the higher payment on interest. They would suffer for a long run basis.
The income group who are able to manage the high requirement of down payment may have a short run effect on their disposable income. But the option help them reducing the burden of interests and thus making them able to save in the long run. So, group who bear the high requirement will lose in the short run gain the long run. But the group which select the lower option of down payment will gain the short run and lose income in the long run loosing the amount they could be saved.