Economics for Today 9th Edition by Irvin Tucker

Exercise 9

Which of the following correctly describes the ceteris paribus assumption?
A) If we increase the price of a good, and consumers' incomes fall, and the quantity demanded is observed to fall, we know that the price increase caused that decline in quantity demanded.
B) If the federal government increases government spending, and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending caused unemployment to fall.
C) If a company reduces its labor costs, negotiates lower materials costs from its vendors, and advertises, we know that the reduced labor costs are why profits are higher.
D) Ceteris paribus requires that we hold other factors constant so that we can isolate the effects of a change in a single factor and be confident that it caused the observable effect.