 Solution

The amplification factor is $R=1-\lambda /N$. To reproduce decay, the forward Euler method requires $|R|<1$, equivalentlyAt $N=\lambda /2$, $R=-1$ and the approximations alternate with constant magnitude $2$; for $N<\lambda /2$, $|R|>1$ and the magnitude grows. This is the condition of absolute stability for this decaying differential equation.

Stability is only a minimum requirement. Values just inside the bound can still give a poor endpoint approximation; resolving the decay accurately generally requires a smaller step size. If positivity at every step is desired, the stronger condition $N\ge \lambda$ ensures $R\ge 0$. The figure shows the difference between decay of the exact solution and numerical oscillation.