If the Investment Demand Curve Is Vertical,a Decrease in the Interest

question 161

Multiple Choice

If the investment demand curve is vertical,a decrease in the interest rate will __________ investment,and therefore aggregate demand will __________.

• A) increase; increase
• B) decrease; increase
• C) decrease; decrease
• D) decrease; remain unchanged
• E) not affect; remain unchanged

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Definitions:

WACC

The weighted average cost of capital, a measure of a firm's cost of capital in which each category of capital is proportionately weighted.

Firm Value

The total value of a company, measured by its market capitalization plus debts, minority interest, and preferred shares, minus total cash and cash equivalents.

Cost of Equity

The return a company theoretically pays to its equity investors to compensate them for the risk they undertake by investing in the stock.

WACC

Weighted Average Cost of Capital. It represents the average rate that a company is expected to pay to finance its assets, weighted according to the proportion of equity and debt in its capital structure.