Figure 2-3 -Points a and B in Figure 2-3 Indicate Consumption and Indicate

question 213

Multiple Choice

Figure 2-3
-Points A and B in Figure 2-3 indicate consumption and investment for two economies. Other things constant, which of the economies is likely to grow more rapidly in the future?

• A) economy A
• B) economy B
• C) They can be expected to grow at the same rate.
• D) This is uncertain since growth is not influenced by the factors indicated in this example.

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Definitions:

Income Effect

The change in an individual's or economy's purchasing power generated by a change in income, affecting the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a shift in relative prices, leading consumers to substitute one product for another more affordable one.

Price Change

An adjustment in the cost of a good or service, which can be an increase or decrease from its previous amount.

Perfect Complements

Goods that are always consumed together in fixed proportions, where the utility derived from one good enhances the utility derived from the other.