You review a salesman's income over a 5-year period. You note it fluctuates tremendously from year to year, yet his consumption of goods and services remains consistently at the same level, year after year
Does this mean that income is not a determinant of consumption, or could something else explain his behavior?
The salesman is not making purchase decisions based on his current income. He is making his consumption decisions based on his expected future income. He is following a pattern exhibited by many people. He prefers to keep his consumption fairly stable from year to year. Yet his income fluctuates significantly. That is, current income explains consumption quite well except in this case when current income is unusually high or unusually low compared to expected future income.
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Economic growth in Lillian’s country has been very slow. Which of the following offers the most likely explanation for this?
a. The population is increasing rapidly. b. The standard of living is low. c. Too much of the nation’s resources are being invested in technology. d. People are saving too much of their income instead of consuming.
If the U.S. can produce wheat at $2 a bushel and corn at $3 bushel, while Canada can produce wheat at $3 a bushel and corn at $4 a bushel, then
A. the U.S. has an absolute advantage at producing both corn and wheat. B. Canada has an absolute advantage at producing both corn and wheat. C. the U.S. has an absolute advantage at producing corn, but not wheat. D. the U.S. has an absolute advantage at producing wheat, but not corn.