Explain how changes in wealth, the price level, interest rates, and expectations alter the consumption curve.
What will be an ideal response?
An increase in wealth increases consumption at each level of disposable income (shifts the consumption curve upward). A rise in the price level reduces the real value of assets. This reduction in wealth reduces consumption at each level of income (shifts the consumption curve downward). An increase in interest rates the reward for saving and discourages borrowers from securing current spending power. An increase in interest rates, therefore, will shift the consumption curve downward. A rise in price expectations may encourage more households to buy now to beat the expected price increase regardless of their current disposable income (shifts the consumption curve upward).
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Refer to Table 5.1. Hector has a comparative advantage in the production of
A) bracelets. B) tiaras. C) both products. D) neither product.
Assuming the United States is the "domestic" country, if the real exchange rate between the United States and France increases from 1.5 to 1.8,
A) the prices of U.S. goods and services have increased by 53% relative to France. B) the prices of U.S. goods and services have decreased by 16% relative to France. C) the prices of U.S. goods and services have increased by 20% relative to France. D) the prices of U.S. goods and services have increased by 3% relative to France.
If the U.S. national income is ten times the national income of Canada and the MPC in the US is 0.75 while it is 0.90 in Canada, then
a. the MPS is greater in the U.S. but consumption is greater in Canada b. the MPS is greater in the U.S. but saving is greater in Canada c. the MPS is greater in Canada but saving is greater in the U.S. d. both the MPS and saving is greater in Canada e. both the MPS and saving is greater in the U.S.
A firm's ______ shows the least-cost input combinations at all possible levels of output for fixed input prices.
A. cost function B. output expansion path C. isocost line D. efficient production frontier