The ____ an MNC, the ____ Its Cost of Capital

question 33

Multiple Choice

The ____ an MNC, the ____ its cost of capital is likely to be.

• A) larger; higher
• B) larger; lower
• C) smaller; lower
• D) A and C

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Definitions:

Income Effect

The change in consumption that results from a change in real income (purchasing power), holding prices constant, reflecting how higher income increases consumption of goods while lower income reduces it.

Income Effect

The change in an individual's consumption choices resulting from a change in their real income.

Substitution Effect

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

Inferior Good

A type of good for which demand decreases when the income of the consumer increases, inversely related to normal goods.