According to the Wealth Effect, When Prices Decrease, the Purchasing

question 183

Multiple Choice

According to the wealth effect, when prices decrease, the purchasing power of assets _____ and consumer spending _____.

• A) decreases; decreases
• B) increases; decreases
• C) decreases; increases
• D) increases; increases

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Definitions:

Earnings Per Share

A company's profit divided by the number of outstanding shares of its common stock, indicating the company's profitability.

Price-Earnings Ratio

A valuation metric for a company, calculated by dividing the market price per share by the earnings per share.

Target Payout Ratio

The proportion of earnings a company plans to distribute to its shareholders as dividends, often expressed as a percentage.

Internal Rate

Short for Internal Rate of Return (IRR), it's a financial metric used to estimate the profitability of potential investments, calculated as the rate of return that sets the net present value of all cash flows from the investment equal to zero.