A budget line is a straight line designed to show
A. how income is related to hours worked.
B. all combinations of two goods that can be purchased with a given income.
C. the way a homemaker should divide money among several commodities.
D. that if more money is spent on one good, the breadwinner must work all the harder to maintain a satisfactory level of living.
E. preferences for goods and services.
Answer: B
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Last year, you earned a nominal wage of $10 per hour and the price level was 120 . This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be
a. 135 b. 132 c. 125 d. 121
Tax distortions happen because tax laws take into consideration only:
A. nominal income. B. nominal output. C. real income. D. real output.