The income consumption curve
A. is always a straight line.
B. is the same as the Engle curve.
C. always goes through the origin.
D. has income on the vertical axis.
Answer: C
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Suppose the nominal interest rate on a savings bond is 7 percent a year and the inflation rate is 4.5 percent a year. How much is the real interest rate?
A) 4.5 percent B) 1.56 percent C) 2.5 percent D) 7 percent E) 11.5 percent
Assuming conventional supply and demand curves, changes in the determinants of both supply and demand will generally:
A. alter both equilibrium price and quantity. B. alter equilibrium quantity but not equilibrium price. C. alter equilibrium price but not equilibrium quantity. D. have no effect on equilibrium price or quantity.
Rational expectations theory assumes that:
A. people behave rationally and that all product and resource prices are flexible both upward and downward. B. firms pay above-market wages to elicit work effort. C. markets fail to coordinate the actions of households and businesses. D. markets are dominated by monopolistic firms.
According to the quantity theory of money, velocity
A. is constant. B. is proportional to the price level. C. is positively related to the real interest rate. D. increases with nominal income.