According to the International Effect Explanation of the Downward Slope

question 129

Multiple Choice

According to the international effect explanation of the downward slope of the AD curve, a higher price level in the U.S. economy causes:

• A) U.S. imports and U.S. exports to increase.
• B) U.S. imports to decrease and U.S. exports to increase.
• C) U.S. imports and U.S. exports to decrease.
• D) US imports to increase and U.S. exports to decrease.

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Definitions:

Capital Structure

The mix of debt and equity financing a company uses to fund its operations and growth.

M&M Proposition II

Modigliani and Miller's Proposition II states that a company's cost of equity increases as it increases its leverage due to the risk premium on equity.

Debt-Equity Ratio

A financial ratio that measures the relative proportion of shareholders' equity and debt used to finance a company's assets.

Financial Risk

The chance of incurring a loss in capital in an investment or business operation.