If the Graph Shown Represents Donna's Budget Constraint,and the Price

question 46

Multiple Choice

If the graph shown represents Donna's budget constraint,and the price of earrings were to decrease,the slope of Donna's budget constraint would become:

• A) steeper, reflecting the fact that hairbands are now relatively less expensive.
• B) flatter, reflecting the fact that hairbands are now relatively more expensive.
• C) steeper, reflecting the fact that earrings are now relatively less expensive.
• D) flatter, reflecting the fact that earrings are now relatively more expensive.

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Definitions:

Net Present Value

A valuation method that calculates the value of future cash flows in today's dollars by discounting them at a particular rate.

Internal Rate Of Return

The critical interest rate that nullifies the net present value of cumulative cash flows from a project.

Discount Rate

The interest rate charged to banks for borrowing short-term funds directly from the Federal Reserve, or broadly, the interest rate used to discount future cash flows to present value.

Average Account Rate

represents the average rate of return on an investment or portfolio over a specific period.