When the Interest Rate Rises

question 85

Multiple Choice

When the interest rate rises

• A)planned investment falls.
• B)planned investment rises.
• C)planned investment will be unaffected.
• D)equilibrium income increases.

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, highlighting the impact of fixed costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit from a company’s ordinary, core business operations.

Contribution Format

An income statement layout that separates fixed and variable costs, allowing for the calculation of contribution margin and easier analysis of profitability.