When We Study the Adjustment Process in Macroeconomics,what Assumption Are

question 14

Multiple Choice

When we study the adjustment process in macroeconomics,what assumption are we making about potential output,Y*?

• A)Potential output is adjusting to changes in factor prices.
• B)Potential output is adjusting to changes in factor supplies.
• C)Potential output is adjusting to changes in technology.
• D)Potential output is constant.
• E)Potential output is not relevant to the analysis of the adjustment process.

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Definitions:

APC (Average Propensity to Consume)

The fraction of income that is spent on consumption as opposed to savings.

Disposable Income

The amount of money available to households for making purchases and savings after the removal of income taxes.

Saving

The act of setting aside a portion of current income for future use, or the portion of income not spent on current expenditures.

MPC (Marginal Propensity to Consume)

The proportion of additional income that is spent on consumption.