If the Price of a Slice of Pizza Falls from $2

question 284

Multiple Choice

If the price of a slice of pizza falls from $2 to $1.5, a pizza-loving consumer will

• A) see her purchasing power fall.
• B) see her purchasing power rise.
• C) substitute more Chinese food for pizza.
• D) spend more on soft drinks and less on pizza.

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Definitions:

Unemployment Insurance

A government program that provides financial assistance to unemployed workers who have lost their jobs through no fault of their own.

Automatic Stabilizers

Economic policies and programs that automatically adjust to counteract economic fluctuations without the need for government intervention.

Business Cycle

The fluctuations in economic activity that an economy experiences over a period of time, marked by periods of expansion and contraction in GDP.

Fiscal Drag

The negative effect on disposable income and aggregate demand when taxes do not fall in line with inflation, effectively increasing the tax burden.