If an economy is closed and has no internal shocks, its consumption will:
A) be perfectly smooth.
B) be erratic depending on consumer tastes.
C) be constrained because households have no means to borrow for large purchases.
D) decline as equipment and machinery depreciate.

Question

Quizplus · Accepted Answer

If an economy is closed and has no internal shocks, there are no sudden changes in income or prices to disrupt consumption patterns. Therefore, consumption would be perfectly smooth.

If an Economy Is Closed and Has No Internal Shocks