Which of the following statements is true?
A. Inflation will have no effect on an individual whose income is indexed to the inflation rate.
B. An individual living on a fixed income is always made better off as a result of deflation.
C. Everyone in society benefits from inflation.
D. Those individuals receiving welfare benefits have been harmed by inflation because increases in welfare payments have not kept pace with inflation.
Answer: D
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In the above figure, the economy initially is at point C. Then the domestic price level rises by 10. A
A) substitution effect would help move the economy to point D. B) substitution effect would help move the economy to point B. C) substitution effect would keep the economy at point C. D) wealth effect would help move the economy to point B.
The underlying assumption of the Harrod-Domar growth model is that
a. the incremental capital-output ratio is given by k ? Y/K. b. growth is mainly determined by capital accumulation. c. growth can be sustained only if agricultural productivity rises. d. developing countries save too much and invest too little.
Some take issue with the human capital argument that employers pay more for college graduates because firms recognize the value of human capital. What are two alternative explanations for why college grads receive higher pay?
What will be an ideal response?
The income effect
A. moves in the opposite direction from the substitution effect for an inferior good. B. is always greater than the substitution effect. C. moves in the same direction as the substitution effect for an inferior good. D. relates to increases in nominal rather than real income.