Other Things Equal, If a Change in the Tastes of American

question 108

Multiple Choice

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then

• A) unemployment will decrease domestically.
• B) U.S. real GDP will fall.
• C) inflation will occur domestically.
• D) U.S. real GDP will rise.

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Definitions:

Cost of Capital

The average rate of return a company must pay to its security holders to fund its assets, integrating the cost of debt and equity.

Incremental Cash Flows

The additional cash flow from taking on a new project, considered essential for analysis in capital budgeting.

Sunk Costs

Costs that have already been incurred and cannot be recovered or altered, not affecting future business decisions.

Capital Budgeting

Capital budgeting is the process by which a business evaluates and selects long-term investments based on their potential to generate profitable returns over time.