When the price of a normal good increases,
a. both the income and substitution effects encourage the consumer to purchase more of the good.
b. both the income and substitution effects encourage the consumer to purchase less of the good.
c. the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
d. the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.
b
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The liquidity preference function shows that as ________
A) real income decreases, so does the demand for real money balances B) the nominal interest rate increases, so does the demand for real money balances C) real income decreases, so does the real interest rate D) all of the above E) none of the above
An asset is considered liquid if it
A) can be used as a store of value. B) has a guaranteed rate of return. C) is indexed to the rate of inflation. D) acts as a medium of exchange. E) none of the above