What Happens When the Price Level Falls

question 4

Multiple Choice

What happens when the price level falls?

• A) Interest rates rise, so firms increase investment.
• B) Interest rates rise, so firms decrease investment.
• C) Interest rates fall, so firms increase investment.
• D) Interest rates fall, so firms decrease investment.

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Definitions:

Deferred Tax Asset

A Deferred Tax Asset arises when a company pays more tax to the government than it owes in its financial statements, which can be used to reduce tax liability in future periods.

Adjusted

Refers to the modification of financial statements to provide a more accurate picture by removing the effects of non-recurring transactions or events.

Permanent Differences

Differences between taxable income and accounting income that are not temporary and hence do not reverse over time.

Pretax Financial Income

The total earnings of a company before any taxes have been deducted.