Identify the Role of General Economic Conditions in a Firm's

question 64

Multiple Choice

Identify the role of general economic conditions in a firm's profitability.

• A)When interest rates are low, many firms can afford to invest in new assets.
• B)When an economy slows down, industry growth rates increase and rivalry decreases.
• C)Inflation tends to increase overall economic growth, decreasing rivalry and the threat of substitutes.
• D)During deflation, many industries experience increases in price competition as a means of gaining market share.

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Definitions:

Effective Tax Rate

The average rate at which an individual or corporation is taxed, considering all forms of taxes.

Investment Account

An account held at a financial institution that holds investments such as stocks, bonds, mutual funds, and other assets for the benefit of the investor.

Intercompany Profit

Profits that arise from transactions between companies within the same corporate group, which could distort the true financial position if not eliminated in consolidated financial statements.

Gross Margin

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.