If the Stock Market Collapses,consumption Will

question 10

Multiple Choice

If the stock market collapses,consumption will:

• A) not be affected.
• B) increase because stocks can now be purchased cheaply.
• C) decrease because people feel less wealthy.
• D) mildly increase.

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Definitions:

Levered Firm

A corporation that has debt in its capital structure, indicating it uses borrowing (leverage) to finance its operations or expansions.

M&M Proposition I

A principle of financial theory stating that under perfect market conditions, the value of a firm is unaffected by how it is financed.

Liquidation

The process of converting assets into cash or cash equivalents by selling them in the market.

Going Concern

An accounting assumption that a company will continue to operate for the foreseeable future, thus justifying the presence of its assets and liabilities.