If the Consumption Function Coincides with the 45- Degree Line

question 56

Multiple Choice

If the consumption function coincides with the 45- degree line, then we know that

• A)the marginal propensity to consume is greater than one.
• B)desired saving is zero at all levels of disposable income.
• C)desired consumption is constant at all levels of disposable income.
• D)desired consumption equals desired saving at all levels of disposable income.
• E)the marginal propensity to consume is less than one.

---

Definitions:

Bad Debt Expense

An expense reported on the income statement, reflecting the cost of credit sales that are not expected to be collected.

Terms 2/10 N/30

A common payment term in business indicating that a buyer can take a 2% discount on the invoice price if payment is made within 10 days; otherwise, the full invoice price is due in 30 days.

Merchandise Returns

Goods returned by the buyer to the seller, often due to defects, dissatisfaction, or other reasons, leading to a reversal of the sale.

Cash Realizable Value

The net amount of cash expected to be received from receivables, after adjusting for any allowances for doubtful accounts.