Which of the Following Statements Is an Accurate Statement of an Implication

question 4

Multiple Choice

Which of the following statements is an accurate statement of an implication of the forward-looking theory of consumption?

• A) The marginal propensity to consume tends to be smaller than it would be otherwise because people view at least part of every income change as temporary.
• B) Sensitivity of consumption to the interest rate tends to make the IS curve flatter than it would be otherwise.
• C) Sensitivity of saving to the interest rate tends to make the marginal propensity to consume smaller than it would be otherwise.
• D) The likely effect of the implied reduction in the short-run marginal propensity to consume tends to make the IS curve steeper than it would be otherwise.
• E) All of the above.

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Definitions:

Realizable Value

An estimate of the amount for which an asset can be sold or a liability settled under current market conditions.

Expense Recognition

An accounting principle that dictates the timing of reporting an expense in the financial statements.

Dishonors

Refers to the failure to accept or pay a bill of exchange or promissory note when due.

Dishonored Note

A promissory note that has not been paid by the maker at maturity.