Firm a Has Assets That Are Mainly in Financial Securities

question 30

Multiple Choice

Firm A has assets that are mainly in financial securities and whose liabilities carry variable interest rates; Firm B has the same assets as Firm A and the same amount of liabilities but its liabilities are all at fixed interest rates. If the central bank lowers interest rates, everything else constant:

• A) Firm B's net worth will increase more than Firm A's.
• B) Firm A's net worth will increase more than Firm B's.
• C) Neither firm's net worth will change.
• D) The net worth of both firms will increase and by the same amount.

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Definitions:

James Mill

A Scottish historian, economist, political theorist, and philosopher, known for his empirical approach to human behavior and advocacy of utilitarianism.

Industrial Age

A period marked by the transition from agrarian societies to industrialized economies, characterized by the development of machinery, factories, and urbanization.

Luddites

Originally, a group of early 19th-century English workers who destroyed machinery, especially in cotton and woolen mills, that they believed threatened their jobs.

Mode of Production

An economic concept referring to the combination of the means of labor (tools, factories, land, etc.) and the method of labor (how work is organized and carried out) to produce goods and services.