The substitution effect causes a consumer to buy less of a product when its price rises because the:
A) consumer's real income has decreased.
B) consumer's real income has increased.
C) product is now less expensive compared to other products.
D) product is now more expensive compared to other products.
Ans: D) product is now more expensive compared to other products.
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Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by:
A. $1 million. B. $20 million. C. $40 million. D. $2 billion.
Intertemporal choice theory is more consistent with ________
A) Keynesian theory than the permanent income hypothesis of Friedman B) the permanent income hypothesis than Keynesian theory C) Keynesian theory than the life-cycle hypothesis D) Keynesian theory than the Gini coefficient theory