Suppose a Representative Household Holds a Bond That Is Expected

question 42

Multiple Choice

Suppose a representative household holds a bond that is expected to pay a real return of $100 one year from now.However, over the next year, the inflation rate rises 15 percent more than was originally anticipated.As a consequence:

• A)the real value of household wealth will increase.
• B)consumption spending will increase, and aggregate demand will rise.
• C)the purchasing power of money will rise.
• D)savings will fall and aggregate expenditures will rise.
• E)the aggregate expenditure in the economy will decrease.

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Definitions:

Negative Relationship

A type of correlation where an increase in one variable is associated with a decrease in another variable.

No Relationship

Outcome of research in which two variables are not related; changes in the first variable are not associated with changes in the second variable.

Negative Linear Relationship

A direct relationship between two variables where an increase in one variable leads to a decrease in another.

Positive Linear Relationship

A relationship between two variables where an increase in one variable is associated with an increase in the other variable, depicted as a straight line.