Suppose You Hold $50 to Buy Groceries Weekly and Then

question 417

Multiple Choice

Suppose you hold $50 to buy groceries weekly and then the price of groceries increases by 5 percent. To be able to buy the same amount of groceries, what must happen to your nominal money holdings?

• A) They must increase by $5.
• B) They can decrease by $5.
• C) They must increase by $2.50.
• D) They must increase, but the amount of the increase depends on income.

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Definitions:

Bilateral Contract

An agreement between two parties in which each party commits to performing a specific obligation.

Consideration

In a contractual agreement, it is the value or promise that each party agrees to exchange.

Promissory Estoppel

A legal principle that enables a party to recover on a promise made when they have reasonably relied on that promise to their detriment, even if a formal contract does not exist.

Illusory Contract

An agreement that fails to bind at least one of the parties due to the lack of a definite promise or because the terms allow for withdrawal without consequence.