Suppose That the Economy Is in Equilibrium with the Government

question 48

Multiple Choice

Suppose that the economy is in equilibrium with the government budget in deficit and with exports greater than imports.According to the circular flow model,

• A)saving must exceed investment
• B)saving must equal investment
• C)saving must be less than investment
• D)saving could be equal to or less than investment
• E)it is impossible to determine anything about saving and investment using the given information

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Definitions:

Future Cash Flows

Estimates of the amount of money expected to be received and paid out by a business in future periods, often used for investment analysis.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment by calculating the difference between the present value of cash inflows and outflows.

Equivalent Annual Cost

A financial analysis tool used to compare the annual costs of alternatives with different lifespans to assess which is more cost-effective.

Internal Rate of Return

A financial metric used to estimate the profitability of potential investments, calculated as the rate of return that makes the net present value of all cash flows equal to zero.