The Budget Line Can Shift or Rotate

question 165

Multiple Choice

The budget line can shift or rotate

• A) only when income changes.
• B) only when prices change.
• C) when either income or prices change.
• D) None of the above, because changes in income and prices do not shift or rotate the budget line.

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Definitions:

Saving and Investment

The act of setting aside income for future use and allocating it to instruments expected to generate returns over time

Nominal-Wage Rigidity

The situation where nominal wages are slow to adjust to changing economic conditions, affecting employment and economic dynamics.

Classical Self-Correction Mechanism

A theory suggesting that free markets are capable of automatically adjusting to and correcting economic imbalances.

Recessions

A temporary downturn in the economy marked by decreased trade and industrial activities, typically recognized by a decline in Gross Domestic Product (GDP) for two consecutive quarters.