PT34 Section 3 Q21 (LR) Forum

[chaofun]

I'm asking this out of academic curiosity more than anything else.

C is the credited response. Can D also work? If the price of nonfood items rises faster than the price level of food, doesn't the nominal income have to rise faster than the food price level? Very simply, one can spend money only two ways: 1. food and 2. non-food items. And the money people spend turns into other people's income.

Okay, maybe that requires some Econ knowledge beforehand, and theoretically the LSAT wouldn't require you to know Econ. But if you just knew that simple idea that when you spend money, it becomes someone else's income, would D make sense? And more deeply, is it possible for the price level to rise without nominal income increasing? Or is my Econ wrong too?

I understand that if you assume C, the conclusion is justified. I just thought that D might have been just as good or better. In fact, it was my first reaction. But maybe I'm wrong in another way that I'm not seeing. Thanks for your responses.

[chewdak]

I'm asking this out of academic curiosity more than anything else.

C is the credited response. Can D also work? If the price of nonfood items rises faster than the price level of food, doesn't the nominal income have to rise faster than the food price level? Very simply, one can spend money only two ways: 1. food and 2. non-food items. And the money people spend turns into other people's income.

Okay, maybe that requires some Econ knowledge beforehand, and theoretically the LSAT wouldn't require you to know Econ. But if you just knew that simple idea that when you spend money, it becomes someone else's income, would D make sense? And more deeply, is it possible for the price level to rise without nominal income increasing? Or is my Econ wrong too?

I understand that if you assume C, the conclusion is justified. I just thought that D might have been just as good or better. In fact, it was my first reaction. But maybe I'm wrong in another way that I'm not seeing. Thanks for your responses.

It appears you assume that all income is spent on food or non-food items.
For all we know a single person saved 99% of her income 30 years ago.

Also, if the price of an item increases, people may buy less of it.
Choice C asserts that people are buying same kinds and quantities of food now as in the past.

[chaofun]

It appears you assume that all income is spent on food or non-food items.
For all we know a single person saved 99% of her income 30 years ago.

Thanks for your response.

I'm saying income comes from money spent on food or non-food items. Or income is what other people have spent on food and non-food items. I'm not talking about how they spend their money after they have it. Sorry, kinda confusing.

This is may be going out of the useful-for-the-LSAT-area and more into the curiosity area. . . I ask this in an economic-textbook way: doesn't all income come from other people spending on food and non food items (regardless of how they spend their income they receive from someone else's spending). The money I spend becomes someone else's income. Essentially, all income is people spending money.

This is from a google search to refresh my Macro Econ (http://econpage.com/202/handouts/EquilibriumY.html):

"To solve for equilibrium income, you will need to remember three equations:

(g) DI = Y - T
(h) AE = C + I + G + (X - M)
(i) AE = Y
(AE is aggregate expenditure, the sum of all expenditures; Y is real GDP; DI is income after taxes)"

I actually thought about these things: what if people saved a lot of their money? Or what if all people bought a lot of imports? Still, even if they did that, is there any way that the price level can increase without income increasing?

--ImageRemoved--

On that graph above, there's no way price level can go up without Y going up too, right?

Also, if the price of an item increases, people may buy less of it.

I can see that on a micro level, if the price increases, people will buy less of one specific non food item. But again, if ALL non-food items have a price increase, that's very different, right? Is there a way for the aggregate price level to increase without Y going up?

It's been a long time since I've taken Econ. I could be wrong about a lot of things, concepts. But I'm curious to know. Thanks.

[chaofun]

It appears you assume that all income is spent on food or non-food items.
For all we know a single person saved 99% of her income 30 years ago.

Thanks for your response.

I'm saying income comes from money spent on food or non-food items. Or income is what other people have spent on food and non-food items. I'm not talking about how they spend their money after they have it. Sorry, kinda confusing.

This is may be going out of the useful-for-the-LSAT-area and more into the curiosity area. . . I ask this in an economic-textbook way: doesn't all income come from other people spending on food and non food items (regardless of how they spend their income they receive from someone else's spending). The money I spend becomes someone else's income. Essentially, all income is people spending money.

This is from a google search to refresh my Macro Econ (http://econpage.com/202/handouts/EquilibriumY.html):

"To solve for equilibrium income, you will need to remember three equations:

(g) DI = Y - T
(h) AE = C + I + G + (X - M)
(i) AE = Y
(AE is aggregate expenditure, the sum of all expenditures; Y is real GDP; DI is income after taxes)"

I actually thought about these things: what if people saved a lot of their money? Or what if all people bought a lot of imports? Still, even if they did that, is there any way that the price level can increase without income increasing?

--ImageRemoved--

On that graph above, there's no way price level can go up without Y going up too, right?

Also, if the price of an item increases, people may buy less of it.

I can see that on a micro level, if the price increases, people will buy less of one specific non food item. But again, if ALL non-food items have a price increase, that's very different, right? Is there a way for the aggregate price level to increase without Y going up?

It's been a long time since I've taken Econ. I could be wrong about a lot of things, concepts. But I'm curious to know. Thanks.

Okay. NM. I am very stupid. My friend told me that SINGLE PERSONS = nonmarried people AND not all individuals. Single people are a very specific group that might very well have low income because of a huge income disparity.

Sorry. Mods can delete this.