If a household's money income changes and prices do not change, what happens to the household's real income and budget line?
What will be an ideal response?
A household's real income is the household's income expressed as a quantity of goods the household can afford to buy. For example, the vertical intercept for a budget line measuring soda on the vertical axis is (y/Psoda), which is the consumer's real income in terms of sodas. A change in a household's money income changes the household's real income in terms of both goods and causes a parallel shift of the budget line. If a household's money income increases, its budget line shifts rightward and if a household's money income decreases, its budget line shifts leftward.
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Which of the following is true?
a. The size of the economic pie to be divided among a country's residents is fixed. b. Government tax and transfer programs have exerted a strong equalizing impact on the distribution of income in the United States. c. The method of allocating income is relevant to the issue of fairness as well as the pattern of income distribution. d. The optimal distribution of income can be determined by objective economic criteria.
In the four-sector Keynesian model,
a. increased government spending reduces aggregate expenditure. b. increased taxes increase aggregate expenditure. c. increased exports increase aggregate expenditure. d. increased imports increase aggregate expenditure.