A Consumer Is Currently Spending All of Her Available Income

question 184

Multiple Choice

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

• A)$4
• B)$8
• C)$12
• D)$20

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Definitions:

Business Cycle

The fluctuations in economic activity that an economy experiences over a period of time, characterized by periods of expansion (growth) and contraction (recession).

Recessions

Intervals of provisional economic contraction, during which commerce and industry slow down, often indicated by a dip in GDP across two sequential quarters.

Real GDP

The measure of a country's economic output adjusted for price changes (inflation or deflation), reflecting the true value of goods and services produced.

Recessions

Episodes of brief economic downturn where business and manufacturing activities decline, usually signaled by a decrease in the GDP for two back-to-back quarters.