Suppose that medical researchers discover a new drug which slows the aging process, allowing the average life span in the United States to increase to 95 years of age. The permanent-income hypothesis suggests that
A) consumption spending would increase since lifetime income increases.
B) consumption spending would increase since estimates of permanent income would increase.
C) consumption spending would decrease since savings would rise to provide income for the longer retirement periods.
D) None of the above is correct since predicted future annual incomes may not change.
D
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A negative slope
A) represents an inverse relationship, such as beers consumed and test score. B) represents a direct relationship, such as snow fall and car accidents. C) indicates that there is no relationship between two variables, such as women's wages and likelihood of sunshine. D) means that the line crosses below the x-axis.
To eliminate a recessionary gap the Fed typically uses __________ monetary policy, and to eliminate an inflationary gap the Fed typically uses __________ monetary policy
A) expansionary; expansionary B) expansionary; contractionary C) contractionary; contractionary D) contractionary; expansionary
A society can produce two goods: green tea and vitamin water. As this society moves down its production possibility frontier, producing more and more units of vitamin water, the opportunity cost of producing vitamin water increases. The society's production possibilities frontier will be
A. positively sloped and bowed outward. B. negatively sloped and bowed inward. C. positively sloped and bowed inward. D. negatively sloped and bowed outward.
Economists assume that rational people
A) never use all available information as they act to achieve their goals. B) undertake activities that benefit others and hurt themselves. C) only weigh the benefits and costs of the most desirable alternative actions. D) respond to economic incentives.