The Intertemporal Substitution Effect of a Change in the Price

question 405

Multiple Choice

The intertemporal substitution effect of a change in the price level results from a

• A) change in the price of foreign goods relative to domestic goods.
• B) change in the price of current goods relative to future goods.
• C) change in the purchasing power of wealth.
• D) Both answers B and C are correct.

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Income Distribution

The way in which a nation’s total income is spread among its population.

United States

A country in North America, consisting of 50 states, a federal district, five major self-governing territories, and various possessions.

Recent Decades

A term referring to the relatively immediate past, often used to describe changes or trends over the last 20 to 30 years.