A Common Assumption That Economists Make About the Behavior of Elected

question 152

Multiple Choice

A common assumption that economists make about the behavior of elected officials is that they try to

• A)maximize the size of their government salaries
• B)maximize the size of their control over the budget process
• C)maximize the number of votes they receive in the next election
• D)minimize the government's expenditures in order to balance the budget
• E)conform to the wishes of special interest groups so that the government behaves as a single, consistent decision maker

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Definitions:

NPV

Net Present Value, a calculation that represents the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Discount Rate

The interest rate that a central bank charges financial institutions for short-term loans, or used in discounted cash flow (DCF) analysis to present value future cash flows.

APR

The Annual Percentage Rate, which is the interest rate for a whole year on a loan, including fees.

Present Value Payback Period

A capital budgeting technique that calculates the period of time required for the present value of future cash flows to cover the initial investment cost.