Which of the Following Statements Concerning Income and Substitution Effects

question 75

Multiple Choice

Which of the following statements concerning income and substitution effects is nottrue?

• A)Income and substitution effects cause the demand curve to slope downward.
• B)When the price of a good falls,real purchasing power increases and consumers can purchase more of all goods.
• C)The substitution effect describes the situation where more of a good whose price has fallen is purchased and less of all other goods is purchased.
• D)A price decrease of one good cannot cause the income effect.
• E)Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.

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Definitions:

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Net Exports

The difference between a country's total value of exports and its total value of imports; a key component of a nation's GDP.

U.S. Bonds

Debt securities issued by the United States government as a way of borrowing money from investors.

Aggregate Demand

The aggregate demand within the economy, reflecting the total goods and services sought after at a specific price level during a particular time frame.