If Households Fail to Recognize That Debt-Financing Represents a Future

question 14

Multiple Choice

If households fail to recognize that debt-financing represents a future liability (in the form of higher taxes) ,they will tend to consume

• A)less and pass less net wealth on to future generations.
• B)more and pass more net wealth on to future generations.
• C)less and pass more net wealth on to future generations.
• D)more and pass less net wealth on to future generations.

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Definitions:

Short-run Marginal Cost Curve

A curve that shows the change in total cost associated with producing one more unit of output in the short term.

Diminishing Marginal Returns

A principle that states as additional units of a variable input are added to fixed inputs, the additional output produced from each new unit eventually decreases.

Variable Resources

Inputs that change in quantity with levels of production, such as raw materials and labor.

Variable Cost

Costs that change in proportion to the level of goods or services that a business produces.