The concept of 'Consumer Equilibrium' under indifference curve analysis is achieved when:
A. Price equals average cost
B. Marginal utility is zero
C. The budget line is tangent to the highest attainable indifference curve
D. Total utility is maximum without budget constraint
Answer: Option C
Solution (By JKSSB Mock Tests)
Consumer equilibrium occurs at the point where the budget line is tangent to an indifference curve, equating the marginal rate of substitution with the price ratio.
Explanation:
In the simplest New Keynesian model with only sticky prices and no other distortions, the optimal policy that fully stabilises inflation also closes the output gap—the so-called divine coincidence.
Explanation:
The Friedman rule states that the optimal monetary policy sets the nominal interest rate to zero so that the opportunity cost of holding real money balances equals the social cost of producing them (approximately zero).
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