In its 2016 Annual Report, Toll Brothers noted, “If mortgage interest rates increase significantly … our revenues, gross margins, and net income could be adversely affected.”
a. Why might an increase in mortgage interest rates reduce revenue and profit for Toll Brothers?
b. During this period, was Fed policy attempting to reach a point on the short-run Phillips curve representing higher unemployment and lower inflation or a point representing higher inflation and lower unemployment? Briefly explain.
c. What connection is there between Fed policy and Toll Brothers’ concern about the effect of rising mortgage interest rates on its profit?