Because of a Rise in Debt in the Aggregate, Leverage

question 51

Multiple Choice

Because of a rise in debt in the aggregate, leverage ratios of firms

• A)will increase and credit-worthiness will decline.
• B)will increase and credit-worthiness will rise.
• C)will decrease and credit-worthiness will decline.
• D)will decrease and credit-worthiness will rise.

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Definitions:

Budget Constraints

The limitations on the spending behavior of consumers based on their income and the prices of goods and services, determining the possible combinations of goods and services they can afford.

Substitution Effect

The economic understanding that as prices rise or incomes decrease, consumers will replace more expensive items with less costly alternatives.

Income Effect

The variation in a person's or economy's earnings and the effect of this variation on the demanded quantity of a product or service.

Ernst Ludwig Kirchner

A German expressionist painter and printmaker, one of the founders of the Die Brücke group, known for his vibrant colors and stark representations of modern life.