An Increase in the Price Level and a Reduction in Output

question 31

Multiple Choice

An increase in the price level and a reduction in output would result from

• A)an increase in the money supply.
• B)an increase in government expenditures.
• C)a fall in stock prices.
• D)bad weather in farm states.

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Definitions:

Income Elasticity

A measure of how much the demand for a product or service changes in response to changes in consumer income.

Inferior Good

A type of good for which demand decreases as the income of individuals increases, opposite to normal goods.

Normal Good

A good for which demand increases when income increases, and falls when income decreases but price remains constant, showing a direct relationship between income and demand.

Income Elasticity

A measure of how much the demand for a good or service changes in response to a change in consumers' income levels.