Suppose a Representative Household Holds a Bond That Is Expected

question 42

Multiple Choice

Suppose a representative household holds a bond that is expected to pay a real return of $100 one year from now.However, over the next year, the inflation rate rises 15 percent more than was originally anticipated.As a consequence:

• A)the real value of household wealth will increase.
• B)consumption spending will increase, and aggregate demand will rise.
• C)the purchasing power of money will rise.
• D)savings will fall and aggregate expenditures will rise.
• E)the aggregate expenditure in the economy will decrease.

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Definitions:

Goods Y

A placeholder term often used in economics to refer to a specific category of goods under discussion or analysis, contrasting with another category labeled "Goods X".

Indifference Curves

Graphical representations in economics showing combinations of goods that give the consumer equal satisfaction and utility.

Utility Function

A utility function is a mathematical representation of a consumer’s preferences, ranking different bundles of goods according to levels of satisfaction.

Indifference Curve

A graph showing different bundles of goods between which a consumer is indifferent, meaning they would derive the same level of satisfaction from any combination.