In Answering Which of the Following Questions Would You Find

question 6

Multiple Choice

In answering which of the following questions would you find it necessary to calculate a present value?

• A)Should Jane put $1,000 today into a 5-year certificate of deposit that pays 4 percent annual interest?
• B)Should ABC Corporation buy a factory today for $2 million,knowing that the factory will yield the corporation $3 million after 5 years?
• C)If Jill puts $5,000 today into a bank account that pays 3 percent interest,then how much will she have in the account after 2 years?
• D)You would find it necessary to calculate a present value in order to answer all of these questions.

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Definitions:

Income Increases

Situations where an individual's or household's earnings rise, potentially affecting their spending, saving, and investment behaviors.

Budget Constraints

The limitations on the consumption choices of individuals or organizations due to limited resources.

Substitution Effect

The economic principle that as prices rise or incomes decrease, consumers will replace more expensive items with less costly alternatives.

Budget Constraints

The limitations on the consumption bundles that a consumer can afford based on their income and the prices of goods and services.