In the IS Curve, Consumption Is Represented as a Constant

question 55

Multiple Choice

In the IS curve, consumption is represented as a constant fraction of ________, and, therefore, is ________ than current output.

• A) potential output; more volatile
• B) potential output; smoother
• C) short-run fluctuations; smoother
• D) short-run fluctuations; more volatile
• E) the interest rate differential; smoother

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Definitions:

Utilitarian Justice

The idea that “a dollar in the hand of a rich person is worth less than a dollar in the hand of a poor person.” If the marginal utility of income declines with income, transferring income from the rich to the poor will increase total utility.

Human Capital

The economic value of a worker's experience and skills, including education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.

Utilitarian Justice

A principle in ethics and economics that a decision should be made so as to maximize overall happiness and reduce suffering among all people affected by the decision.

John Stuart Mill

A British philosopher and economist, known for his contributions to liberalism, utilitarianism, and political economy.