Refer to the Consumption Schedule Shown in the Graph

question 227

Multiple Choice

Refer to the consumption schedule shown in the graph. As income falls from level 3 to level 2, the amount of

• A) consumption increases and the amount of dissaving increases.
• B) consumption decreases and the amount of dissaving decreases.
• C) consumption decreases and the amount of saving decreases.
• D) consumption decreases and the amount of saving increases.

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Definitions:

Perpetuity

A financial instrument that pays a fixed amount of interest indefinitely, with no maturity date.

Continuously Compounded

Refers to the mathematical limit where the frequency of compounding interest reaches infinity over a defined period, leading to the maximal possible growth.

Rate Of Return

The reward or penalty on an investment concluded over a chosen length of time, denoted as a percentage of the investment's initial outlay.

Triple

In finance, this term is not clearly defined without additional context; however, in credit ratings, a 'Triple A' rating signifies the highest credit quality.