Other Things Equal, If a Change in the Tastes of American

question 108

Multiple Choice

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then

• A) unemployment will decrease domestically.
• B) U.S. real GDP will fall.
• C) inflation will occur domestically.
• D) U.S. real GDP will rise.

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Definitions:

Substitution Effect

The alteration in purchasing habits stemming from a shift in the relative cost of products, causing individuals to replace one item with another.

Price Change

A variation in the cost of a good or service over time or in response to supply and demand dynamics.

Income

The money received by an individual or entity in exchange for labor, from investments, or from any other source, over a period of time.

Utility Function

A mathematical representation that ranks an individual's or agent's preferences over sets of goods and services, yielding levels of satisfaction.