Suppose Inflation Comes in the Form of an Across-The Board

question 7

Essay

Suppose inflation comes in the form of an across-the board increase in all prices by some percentage k.For a consumer with exogenous income operating in a 2-good world,this will cause the budget constraint to
a.
rotate inward
b.
rotate outward
c.
shift out in a parallel way
d.
shift inward in a parallel way
e.
none of the above

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Definitions:

Consumer's Income

The total amount of money earned by a consumer, influencing their purchasing power and spending behavior.

Equilibrium

A state of balance or stability within a system where opposing forces or influences are equal and cancel each other out.

Marginal Utility

The supplementary satisfaction or advantage received from consuming one more unit of a good or service.

Utility Maximization

An economic principle that suggests individuals seek to achieve the highest level of satisfaction possible with their available resources.