Refer to Figure 3 Below

question 39

Multiple Choice

Refer to figure 3 below. Which statement about the two possible IS curves in figure 3 is true? Figure 3

• A) The economy is in equilibrium where IS₁ and IS₂ intersect.
• B) IS₁ represents an economy in which consumers' expenditure and investment spending are more sensitive to interest rate changes than they are in the economy represented by IS₂.
• C) IS₁ represents an economy in which consumers' expenditure and investment spending are less sensitive to interest rate changes than they are in the economy represented by IS₂.
• D) None of the above is true.

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Definitions:

Financial Leverage

The use of borrowed funds to increase the potential return of an investment.

All Equity Firm

A business that is financed entirely through equity capital, with no debt or borrowed funds.

Repurchase Shares

The action by a company to buy back its own shares from the marketplace, reducing the amount of outstanding stock.

Deceased Shareholder

A situation where a shareholder of a company passes away, triggering legal and financial actions regarding the ownership of the shares.