Using the Constant Growth Model,an Increase in the Required Rate

question 86

Multiple Choice

Using the constant growth model,an increase in the required rate of return from 14 to 18 percent combined with an increase in the growth rate from 8 to 12 percent would cause the price to

• A) Fall more than 4%
• B) Fall less than 4%.
• C) Rise more than 4%
• D) Rise less than 4%.
• E) Remain constant.

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Definitions:

Total Savings

The aggregate amount saved by individuals, businesses, and the government, often measured over a specific time period.

Capital Formation

The process of building up the stock of physical and financial assets in an economy, often through investment in productive assets.

Autonomous Consumption

The level of consumption that occurs when income is zero; it represents the expenditures that consumers must make even when they have no income.

Induced Consumption

Consumer spending that increases when income increases, and decreases when income decreases, reflecting behavioral responses to changes in income.