You Work as a Forecaster for a Luxury Automobile Manufacturer

question 124

Multiple Choice

You work as a forecaster for a luxury automobile manufacturer. You know that there is a strong positive relationship between the demand for luxury automobiles and income levels. The government issues a report predicting that it expects income levels to increase steadily over the next 5 years. All else equal, which of the following courses of action would you recommend to the firm?

• A) Don't change the amount of investment made, but raise the price of luxury automobiles in response to the expected increase in the demand.
• B) Suggest that the firm make an investment in new capital to produce luxury automobiles only after it can verify an increase in income levels.
• C) Start to increase investment now so that when income levels increases and the demand for luxury automobiles increases, the firm will be able to meet the new demand.
• D) Suggest that the firm curtail its advertising to avert a substantial increase in demand for luxury automobiles.

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Definitions:

Not-For-Profit Organization

An organization that operates for purposes other than making a profit, often focusing on social, educational, or charitable activities.

Income Statement

A financial statement that reports a company's financial performance over a specific period, detailing revenues, expenses, and net income or loss.

Statement of Cash Flows

A financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents.

Balance Sheet

A summary report of a company's financial position, detailing assets, liabilities, and equity of shareholders at a certain moment.