Which of the Following Is a Key Assumption of Income-

question 27

Multiple Choice

Which of the following is a key assumption of income- flow valuation methods of share valuation?

• A) Current income flow is the only relevant factor.
• B) The past is only useful to the extent that it sheds light on the future.
• C) Current net income is the only relevant factor.
• D) Current income trends give sufficient information to predict future income levels.

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Definitions:

Substitution Effect

The change in consumption that results from a change in the relative price of goods, leading consumers to substitute away from higher-priced goods.

Income Effect

The income effect describes the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Normal Good

A type of good for which demand increases as the income of the consumer increases, holding all else constant.

Wealth Effect

The change in spending and consumption patterns by individuals or households due to changes in their real or perceived wealth.