If Real Interest Rates Increase, the Expenditure Line

question 38

Multiple Choice

If real interest rates increase, the expenditure line

• A)does not change.
• B)becomes steeper.
• C)becomes flatter.
• D)shifts down in a parallel way.
• E)shifts up in a parallel way.

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Definitions:

Behavioral Economists

Specialists examining the effects of psychological, cognitive, emotional, cultural, and social components on the economic decision-making of individuals and institutions.

Nudges

Subtle policy shifts or design changes that steer people's behavior in predictable ways without forbidding any options or significantly changing economic incentives.

Prospect Theory

A behavioral economic theory that suggests individuals value gains and losses differently, leading to decisions that can deviate from traditional economic predictions which assume rational behavior.

Behavioral Economics

A field of economics that studies how psychological, cognitive, emotional, cultural, and social factors affect the economic decisions of individuals and institutions.