Which of the Following Statements Is True

question 11

Multiple Choice

Which of the following statements is true?

• A)A recession occurs when the expenditure line shifts down the 45-degree line.
• B)A recession occurs whenever potential GDP is less than real GDP at the point of spending balance.
• C)A recession occurs whenever income and expenditures are not equal.
• D)A recession occurs when the expenditure line crosses the 45-degree line at a level of income less than potential GDP.
• E)The expenditure line cannot be used to identify recessions or expansions.

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Definitions:

Income Elasticity

A measure of how the demand for a good or service changes in response to changes in consumer income.

Homothetic Preferences

A situation in consumer theory where a consumer's preference structure can be represented by a utility function that is proportionally scalable.

Engel Curve

A graphical representation that shows the relationship between income and the demand for a good or service, keeping all other factors constant.

Utility Function

A mathematical representation of how a consumer ranks different baskets of goods according to their level of satisfaction.