The Graph Above Shows the Relationship Between Consumption and Income

question 3

Multiple Choice

The graph above shows the relationship between consumption and income. The ratio LM/PL would be a measure of the:

• A) Marginal propensity to consume
• B) Marginal propensity to save
• C) Average propensity to consume
• D) Average propensity to save

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Definitions:

Managerial Purposes

Utilized to describe the actions or decisions made by managers in running a company, often aimed at achieving strategic goals and maintaining operational efficiency.

Accounting Income

It is the income reported by a company as per the accounting principles, including all revenues minus expenses, excluding any unrealized gains or losses.

Adjustments

Modifications made to financial statements or data to correct inaccuracies or allocate revenues and expenses.

Free Cash Flow

The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets, indicating the financial health and profitability of a company.