One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the

The income-expenditure identity is best paraphrased as

A) all spending generates income. B) all profits are used for investment spending. C) on average, consumers cannot save. D) on average, government can spend no more than what it collects in income taxes.

Other things constant, an increase in resource prices will

a. increase the demand for goods and services. b. increase the cost of producing goods and services, which will lead to a higher price level. c. reduce costs and improve profit margins, which will lead to an increase in aggregate supply in the goods and services market. d. cause the natural rate of unemployment to rise.