If Consumption Depends Positively on the Level of Real Balances

question 59

Multiple Choice

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:

• A) the classical dichotomy still holds.
• B) a rise in money growth leads to a fall in consumption and a rise in investment.
• C) a rise in money growth leads to a rise in consumption and a fall in investment.
• D) a rise in money growth leads to a rise in both consumption and investment.

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Definitions:

Tendency for Attitudes

A predisposition or inclination to respond in a particular way toward certain situations, objects, or people, reflecting underlying beliefs or feelings.

Cognitive Dissonance Theory

A psychological theory that suggests that we experience discomfort or dissonance when our beliefs, ideals, or actions are in conflict, leading to an internal drive to reduce the dissonance.

Belief Perseverance

The finding that once beliefs form, they are resistant to change, even if the information on which they are based is discredited

Effort Justification

A phenomenon whereby individuals rationalize the effort and resources they put into achieving a goal by increasing their appreciation or valuation of the goal, especially when the effort was substantial.