When the Price of a Good Falls, Consumers May Increase

question 60

Multiple Choice

When the price of a good falls, consumers may increase the quantity consumed because they have greater total purchasing power. This statement describes the:

• A) substitution effect.
• B) income effect.
• C) consumer equilibrium effect.
• D) price effect.

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Definitions:

Required Reserve Ratio

The fraction of deposits that a bank is legally required to hold as reserves, either in its own vaults or with a central bank.

Government Spending

Expenditures made by the government for its operations, provision of public services, or interventions in the economy.

U.S. Government Securities

Fixed-income investments backed by the full faith and credit of the United States government, including Treasury bills, notes, and bonds.

Money Supply

The total amount of monetary assets available in an economy at any specific time.