To the extent that firms base investment decisions on current profits,
A) Tobin's q theory is supported
B) investment spending tends to destabilize the economy
C) resources are efficiently allocated
D) the hypothesis that available cash flow drives investment is rejected
E) taxes, depreciation, and interest rates are irrelevant

Question

Quizplus · Accepted Answer

When firms base investment decisions on current profits, investment spending can become pro-cyclical, amplifying economic fluctuations and potentially destabilizing the economy.

To the Extent That Firms Base Investment Decisions on Current