Assume That an Increase in Consumer Confidence Raises Consumers' Expectations

question 116

Multiple Choice

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given income. This shift, in a neoclassical economy, will:

• A) lower investment and raise the interest rate.
• B) raise investment and lower the interest rate.
• C) lower both investment and the interest rate.
• D) raise both investment and the interest rate.

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Definitions:

Capital

Resources made and used by humans to produce goods and services, including buildings, machinery, and equipment.

Barriers to Entry

Obstacles that prevent new competitors from easily entering an industry or area of business.

Industry Structure

The characteristics that influence the nature of competition and pricing in a particular industry, including the number and size of firms, entry barriers, and product differentiation.

Government Restrictions

Regulations imposed by authorities to control or limit certain activities, behaviors, or operations.