Related to the Economics in Practice on P

question 8

Multiple Choice

Related to the Economics in Practice on p. 476: According to the "paradox of thrift," as individuals increase their saving

• A) income in the economy increases because there is more money available for firms to invest.
• B) income in the economy increases because interest rates will fall and the economy will expand.
• C) income in the economy will remain constant because the change in consumption equals the change in saving.
• D) income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.

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Definitions:

Expected Utility

A theory in economics that calculates the utility expected from different choices to assess risk and make decisions.

Income

The financial gain that an individual or business receives, usually from employment, business activities, or investments.

Utility Function

A mathematical representation of how a particular good or set of goods generates satisfaction or utility for an individual or consumer.

Flood

An overflow of water that submerges land which is usually dry.