If firm-level asymmetric information becomes more severe,then
A) investment demand decreases.
B) investment demand does not change.
C) investment demand increases.
D) there is an unambiguous effect on investment demand.
E) investment demand decreases if the subsitution effect dominates, increases if the income effect dominates.

Question

Quizplus · Accepted Answer

When firm-level asymmetric information becomes more severe, potential investors become more risk averse and demand a higher return on their investment to compensate for the additional risk. As a result, firms may find it more difficult and expensive to raise funds for investment projects, leading to a decrease in investment demand.

If Firm-Level Asymmetric Information Becomes More Severe,then