Following an Income-Compensated Price Change, You Decide to Decrease the Quantity

question 9

Multiple Choice

Following an income-compensated price change, you decide to decrease the quantity of ice cream purchased each month when the price increases and purchase more frozen yogurt instead.This is an indication of the:

• A) substitution effect.
• B) utility effect.
• C) income effect.
• D) consumption effect.

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Definitions:

Exchange Rate

The rate at which one currency can be exchanged for another, determining how much of one currency is needed to purchase a unit of another currency.

Spot Trade

An agreement to trade currencies based on the exchange rate today for settlement in two days.

Exchange Rate

The rate at which one currency can be exchanged for another, usually used in international trade and finance.

Counterparty

Second borrower in currency swap. Counterparty borrows funds in currency desired by principal.