A Decrease in the Propensity to Consume from 0

question 16

Multiple Choice

A decrease in the propensity to consume from 0.89 to 0.64 will cause:

• A) the ZZ line to become flatter and a given change in autonomous spending (c0) to have a larger effect on output.
• B) the ZZ line to become flatter and a given change in autonomous spending (c0) to have a smaller effect on output.
• C) the ZZ line to become steeper and a given change in autonomous spending (c0) to have a larger effect on output.
• D) the ZZ line to become flatter and a given change in autonomous spending (c0) to have no effect on output.
• E) the ZZ line to become steeper and a given change in autonomous spending (c0) to have a smaller effect on output.

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Definitions:

Annual Net Cash Flows

The net amount of cash that is received or expended by a business during a year, after all cash inflows and outflows are accounted for.

Expected Total Cash Flows

The anticipated sum of all cash inflows and outflows associated with an investment over a specific period.

Salvage Value

The estimated residual value of an asset at the end of its useful life, reflecting what it could be sold for or scrapped.

Net Present Value

This is the difference between the present value of cash inflows and the present value of cash outflows over a period of time, used to assess the profitability of an investment.