The substitution effect shows that
A. if the price of a good falls, consumers buy less of all goods.
B. if the price of a good falls relative to all other goods, consumers buy less of that good and more of all others.
C. if the price of a good rises, consumers buy less of that good and more of others.
D. if the price of a good increases, consumers buy more of that good and less of all others.
Answer: C
You might also like to view...
The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply held constant, will
A) increase real GDP by 1 percent per year for two years. B) increase real GDP by 2 percent per year for two years. C) decrease real GDP by 1 percent per year for two years. D) have no effect on real GDP.
Economists assume people's tastes are
a. determined solely by advertising b. relatively stable over time c. quite variable d. irrelevant to utility analysis e. identical
Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
A) increase. B) decrease. C) not change. D) increase if the economy is in a recession.
If a country experiences capital flight, which curves shift right?
a. the demand for loanable funds and the demand for its currency in the market for foreign-currency exchange b. the demand for loanable funds and the supply of its currency in the market for foreign-currency exchange c. the supply of loanable funds and the demand for its currency in the market for foreign-currency exchange d. the supply of loanable funds and the supply of its currency in the market for foreign-currency exchange