Which of the following statements concerning income and substitution effects is not true?
a. Income and substitution effects cause the demand curve to slope downward.
b. When the price of a good falls, real purchasing power increases and consumers can purchase more of all goods.
c. The substitution effect describes the situation in which more of the good whose price has fallen is purchased, and less of all other goods is purchased.
d. A price decrease of one good cannot cause the income effect.
e. Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.
d
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When actual output equals potential output and the inflation rate is equal to the expected rate of inflation, the economy is said to be in ________ equilibrium.
A. recessionary B. long-run C. expansionary D. short-run
One of the major points of the circular flow diagram is:
a. If GDP rises due to increased production, incomes earned from producing GDP must rise. b. Increasing gross private domestic investment is the best way for a nation to grow. c. Increasing government spending is the best way for a nation to grow. d. The top and bottom flows are proof that most economies should always be in equilibrium. e. None of the above.
Which of the following characterizes stagflation?
A. A decrease in unemployment but an increase in inflation. B. An increase in both unemployment and inflation. C. An increase in unemployment but a decrease in inflation. D. A decrease in both unemployment and inflation.
Which of the following will cause aggregate private spending to increase?
A) an increase in government spending B) a reduction in expected future interest rates C) a reduction in expected future taxes D) all of the above E) none of the above