A rise in stock prices ________ the net worth of firms and so leads to ________ investment spending because of the reduction in moral hazard.
A)raises;higher
B)raises;lower
C)reduces;higher
D)reduces;lower

Question

Quizplus · Accepted Answer

A rise in stock prices raises the net worth of firms, making them more financially stable and confident. This, in turn, leads to higher investment spending due to the reduction in moral hazard. Firms are less likely to take risky projects if they have substantial equity and less debt.

A Rise in Stock Prices ________ the Net Worth of Firms