There Are Two Goods, X and Y, and the Absolute

question 80

Multiple Choice

There are two goods, X and Y, and the absolute price of good Y falls. It follows that

• A)a person can now buy less of good Y.
• B)a person cannot buy more of good Y.
• C)the slope of the budget constraint changes.
• D)the indifference curve between goods X and Y changes.

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Price Level

The central value of current prices for each good and service in the economy.

Value of Money

The purchasing power of money, which varies with inflation and economic conditions, indicating how much goods and services money can buy.

Keynesian Economics

An economic theory suggesting that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.