Calvin Is Planning Ahead for Retirement and Must Decide How

question 266

Multiple Choice

Calvin is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

• A)increase his savings rate.
• B)decrease his savings rate.
• C)continue saving at the same rate.
• D)Any of the above are possible.

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Definitions:

Receivable Turnover Ratio

A measure of how efficiently a company collects its accounts receivable, calculated by dividing net credit sales by average accounts receivable.

Inventory Turnover Ratio

A metric that calculates the number of times inventory is sold or consumed in a given time frame, reiterating the effciency of inventory management.

Quick Ratio

Quick ratio, also known as acid-test ratio, is a liquidity metric that indicates a company's ability to cover its short-term liabilities with its most liquid assets, excluding inventory.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.