Government spending affects aggregate demand directly, and tax changes affect aggregate demand indirectly. Therefore, changes in
A. taxes are ineffective in changing aggregate demand.
B. government spending affect aggregate demand more quickly than changes in taxes.
C. taxes are virtually useless as a stabilization tool.
D. government spending should be used with great caution.
Answer: B
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What term is defined as the change in the amount consumers will buy because the purchasing power of their money changes?
a. consumer taste b. consumer expectation c. income effect d. substitution effect
Suppose that the income elasticity of demand for college education is 1.3 . This indicates that
a. college education is a necessity b. college education is an inferior good c. the demand curve for college education slopes downward d. college education is a normal good e. the demand curve for college education is horizontal