If an Economist Wants to Make a Prediction About the Effects

question 38

Multiple Choice

If an economist wants to make a prediction about the effects of a change in disposable income on the change in consumption spending based on historical data, she must assume that

• A)the future will closely resemble the past.
• B)consumption and disposable income will be negatively related.
• C)the consumption function will have a downward slope.
• D)as disposable income increases, consumer spending will remain constant.

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Definitions:

Acid-Test Ratio

A stringent indicator of a company's short-term liquidity, calculated by dividing current assets excluding inventory by current liabilities.

Working Capital

The difference between a company's current assets and its current liabilities, indicating the liquidity of the business.

Financial Data

Quantitative information about financial conditions, performance, and transactions of a business, individual, or entity.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.