On a Graph of a Consumption Function, What Is the Significance

question 51

Multiple Choice

On a graph of a consumption function, what is the significance of the 45- degree line?

• A)Desired consumption is zero at all points along the 45- degree line.
• B)It shows the slope of the average consumption function, against which we measure other consumption functions.
• C)It connects all points where desired consumption equals desired saving.
• D)It connects all points where desired consumption equals desired expenditure.
• E)It connects all points where desired consumption equals actual disposable income.

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Definitions:

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account.

Required Rate

The minimum return an investor expects to achieve when investing in a particular asset or project.

Payback Period

The duration of time it takes for an investment to generate enough revenue to recover the initial cost of the investment.

Profitability Index

A measure used in capital budgeting to evaluate the profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.