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:

Depreciation Expense

A method for allocating the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Flotation Costs

The costs incurred by a company when it issues new securities, including underwriting fees, legal fees, and registration fees.

Cost Of Capital

A company's calculation of the minimum return necessary to justify the cost of a capital project or investment.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and a claim on part of its assets and earnings.