Which of the Following Statements Is CORRECT, Holding Other Things

question 20

Multiple Choice

Which of the following statements is CORRECT, holding other things constant?

• A) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
• B) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
• C) An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
• D) An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.
• E) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt.

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Definitions:

Private Consumption

Spending by households and individuals on goods and services for personal use, excluding purchases by businesses or governments.

Pareto Optimal

A situation in which it is impossible to make any one individual better off without making at least one individual worse off.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.

Private Consumption

The total spending by households and individuals on goods and services for personal use, excluding government spending.