An increase in the price level, other things remaining the same, may be expected to result in ____ the consumption function.

Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation. Hence, the government decides to implement a fiscal policy that will act to reduce national output and prices. This can be accomplished by:

a. increasing government spending such that aggregate expenditures are increased. b. raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. c. decreasing government spending such that aggregate demand is reduced. d. lowering average tax rates such that aggregate supply is increased. e. increasing transfer payments such that aggregate expenditures decline.

Suppose an increase in the price of hair dryers leads to an increase in total expenditures on the hair dryers. Which of the following is true for this price change?

a. Hair dryers are an inferior good. b. The demand for hair dryers is perfectly elastic. c. The demand for hair dryers is inelastic. d. The demand for hair dryers is elastic.