When the Marginal Propensity to Consume Is Less Than 1

question 19

Multiple Choice

When the marginal propensity to consume is less than 1, the:

• A) Average propensity to consume is greater than 1
• B) Average propensity to save is greater than 1
• C) Marginal propensity to save is negative
• D) Marginal propensity to save is positive

Interpret the significance of operating cash flows in project evaluation.

Analyze the impact of depreciation on project costs and cash flows.

Understand the relationship between selling price, variable cost, and contribution margin.

Calculate and interpret the required rate of return for a project.

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Definitions:

Equilibrium

A state in which economic forces such as supply and demand are balanced and in the absence of external influences, the values of economic variables will not change.

Investor

A person or organization that invests money anticipating a return on their investment.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.

Perceived Budget Line

The subjective view of the combination of goods and services that a consumer can purchase with their available resources, based on their perception of their budget.