In the Long Run, a Decrease in the Growth Rate

question 155

Multiple Choice

In the long run, a decrease in the growth rate of the money supply will cause

• A) nominal interest rates to decrease and decrease the real interest rate.
• B) nominal interest rates to increase and will increase the real interest rate.
• C) nominal interest rates to increase and will not affect the real interest rate.
• D) nominal interest rates to decrease and will not affect the real interest rate.

Understand the historical changes in debt-to-equity ratios and how they inform current financial strategies.

Know the implications of taxes and bankruptcy claims on firm cash flows and capital structure decisions.

Understand the principles behind Modigliani and Miller propositions related to capital structure, taxes, and the cost of capital.

Identify the various factors affecting the optimal level of debt for a firm.

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Definitions:

Producers

Entities that create, manufacture, or supply goods and services for the purpose of selling to consumers, businesses, or other producers.

Consumer Surplus

The gap between the total sum consumers are ready and able to spend for a good or service and the actual amount they pay.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded, typically downward sloping to the right, reflecting the inverse relationship between price and quantity demanded.

Market Price

The current price at which an asset or service can be bought or sold in a competitive marketplace.