The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the
a. income effect.
b. substitution effect.
c. Giffen good effect.
d. inferior good effect.
b
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Holding other factors constant, a decline in the price of new capital goods will:
A. increase national saving. B. increase investment. C. decrease national saving. D. decrease investment.
Starting from long-run equilibrium, a large tax cut will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; higher B. expansionary; higher; potential C. recessionary; higher; potential D. recessionary; lower; lower
Along the portion of the consumption function that lies above the 45-degree line, saving is
A. equal to consumption. B. positive. C. negative. D. equal to zero.
If government spending is increased by $300, taxes are reduced by $300, and the MPS is 0.5, equilibrium output will change by
A. $0. B. $300. C. $900. D. an amount that cannot be determined from this information.