A firm is said to be countercyclical if its returns:
A) continue to decrease, year after year.
B) continue to increase, year after year.
C) are better when most firms do poorly.
D) are negative in real terms.

Question

Quizplus · Accepted Answer

A countercyclical firm is one whose returns are better when most other firms are doing poorly, such as during an economic downturn. Option A is incorrect because a firm whose returns continue to decrease year after year is not necessarily countercyclical, but rather facing declining performance irrespective of the broader economic situation. Option B is incorrect because a consistently increasing performance is not necessarily indicative of a countercyclical firm, as it may still perform poorly relative to its peers during a recession. Option D is incorrect because negative real returns are not synonymous with countercyclical performance, as real returns reflect inflation-adjusted values whereas countercyclical performance relates to changes in broader economic conditions.

A Firm Is Said to Be Countercyclical If Its Returns