Why are indifference curves convex to the origin?
What will be an ideal response?
Indifference curves are convex because of diminishing marginal utility. When a consumer has a large amount of good Y (and a small amount of good X), he will be willing to give up a great deal of good Y to receive a little more of good X. However, if the individual has only a small amount of good Y and a large amount of good X, he will not be very willing to give up good Y to receive more of good X.
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The aggregate expenditure in an open economy is defined as:
A) E = C + I + G. B) E = C + I + G + X. C) E = C × I × G × X - M. D) E = C + I + G + X - M.
Along an LM curve at higher income levels the transactions demand for money is __________, so the interest rate must be __________ to equate the demand to the fixed supply of money
A) higher; higher B) higher; lower C) lower; higher D) lower; lower