The Demand for Money to Cover Unexpected Expenditures and to Meet

question 183

Multiple Choice

The demand for money to cover unexpected expenditures and to meet emergencies is known as

• A) the transactions demand for money.
• B) the precautionary demand for money.
• C) the asset demand for money.
• D) the terminal demand for money.

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Definitions:

CM Ratio

The CM Ratio, or Contribution Margin Ratio, is a financial metric that shows the proportion of sales revenue that exceeds variable costs, indicating the amount available to cover fixed costs and generate profit.

Fixed Expenses

Costs that remain constant for a set period and do not vary with changes in activity level, production volume, or sales, such as lease payments and utility bills. This is a rephrased definition of Fixed Costs.

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity.

Contribution Margin

The difference between sales revenue and variable costs, serving as a measure to assess the profitability of products or services.