The Income Effect for an Inferior Good

question 400

Multiple Choice

The income effect for an inferior good

• A) is negative.
• B) is zero.
• C) is positive.
• D) could be negative, zero, or positive.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows, discounted at a specified rate of return.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return or discount rate.

Discounting

The process of determining the present value of future cash flows by applying a discount rate.

Compounding

The process in which the value of an investment increases because the earnings on an investment, both capital, and interest, earn interest as time passes.