The Demonstration Effect Suggests That People Will Save Less When

question 41

Multiple Choice

The demonstration effect suggests that people will save less when they

• A)base their spending decisions (and consequently their saving decisions)on spending decisions of others who spend more than they do.
• B)base their saving decisions on their projections of income and spending needs over their lifetime.
• C)recognize that the real interest rate has increased.
• D)control their spending in order to save more when the real interest rate increases.

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Definitions:

Adjusting Entry

An adjusting entry is a journal entry made in the accounting records at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Salaries and Wages Expense

The total amount recorded by a company for the cost of salaries and wages paid to employees.

Fiscal Period

A specific time period for which an organization plans its budgets and reports financial performance, often a year or quarter.

Unearned Service Revenue

Unearned service revenue is money received by a company for services it has yet to perform, considered a liability until the service is delivered.