What monetary policy would the Federal Reserve adopt to stimulate economic growth?
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The indifference curve is illustrated below.
<h3>How to explain the indifference curve?</h3>The social utility function is W = UL + UA, then the social indifference curves are straight lines with a slope of -1.
We write W = UL + UA = 1. Rearranging the terms obtains: UL = 1 – UA
This is the algebraic form for this indifference curve. Geometrically, it’s a straight line with the slope -1.
We can construct indifference curves for other levels of the social utility:
UL = 2 – UA for W=2, UL = 3 – UA for W=3, etc.
This social utility function implies that society views Augustus and Livia as interchangeable members of society
If the social utility function is W = UL + 2UA, then the society values Augustus’ utility twice as much as Livia’s utility.
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