If the Government Does Not React to a Recession

question 13

Multiple Choice

If the government does not react to a recession:

• A) the economy will fail to return to its long-run equilibrium.
• B) the economy will recover, but much more slowly.
• C) voters and consumers are likely to be happy with less government interference.
• D) the downturn will spread to other countries.

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Definitions:

Nonconvex Preferences

Preferences where an individual values mixtures of goods or services less than pure bundles, violating the convexity assumption in utility theory.

Perfect Substitutes

Goods or services that can be used in place of each other with no loss of utility to the consumer.

Monotonic Transformation

A mathematical operation applied to a function that preserves the order of the data.

Utility Function

An equation that calculates the total utility a consumer gains from consuming a certain quantity of goods and services.