A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability of a recession in the next few years has increased dramatically because of adverse international events. Its investment demand will
A) decrease because lower investment returns are expected.
B) increase because lower returns to investment are expected.
C) increase to compensate for lower expected sales.
D) remain unchanged because auto manufacturing is well insulated from global events.

Question

Quizplus · Accepted Answer

With the increased probability of a recession, the investment returns are expected to decrease, and hence the investment demand will decrease.

A Luxury Car Manufacturer Is Contemplating Investing in Its Assembly