Refer to the Given Graph

question 20

Multiple Choice

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n)

• A) recession.
• B) wealth effect of an increase in stock market prices.
• C) increase in income tax rates.
• D) increase in saving.

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Definitions:

Households

The basic economic units consisting of all individuals who live together and make joint decisions on consumption and labor supply.

Firms

Entities that produce goods or provide services, typically with the aim of making a profit.

Monetary Policy

The actions of a central bank, currency board or other regulatory authorities that determine the size and rate of growth of the money supply, which in turn affects interest rates.

Circular-Flow Diagram

A visual model showing the interactions between households and firms in an economy, illustrating the flows of goods and services and factors of production in markets.