If all prices rise by 5 percent and money income remains constant, the new budget line will have

Question

Quizplus · Accepted Answer

The budget line represents all possible combinations of two goods that a consumer can purchase given their income and the prices of the two goods. When all prices rise by 5 percent and money income remains constant, the relative prices of the two goods do not change, and the purchasing power of the consumer remains the same. Therefore, the slope of the budget line remains the same.

If All Prices Rise by 5 Percent and Money Income