Everything Else Held Constant,when Financial Frictions Increase,the Real Cost of Borrowing

question 99

Multiple Choice

Everything else held constant,when financial frictions increase,the real cost of borrowing ________ so that planned investment spending ________ at any given inflation rate.

• A)increases;falls
• B)decreases;falls
• C)decreases;rises
• D)increases;rises

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Definitions:

Price/Earnings

Also known as the P/E ratio, this measures a company's current share price relative to its per-share earnings.

Profit Margin

A financial metric expressing the percentage of income that remains as profit after all expenses, including taxes, are subtracted from total revenues.

Acid-Test

A financial metric that assesses a company's ability to pay its current liabilities with its quick assets (cash, marketable securities, and receivables).

Operating Segment

An operating segment is a component of a business that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker.