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) remain unchanged because auto manufacturing is well insulated from global events.
B) decrease because lower investment returns are expected.
C) increase because lower returns to the investment are expected.
D) increase to compensate for the lower expected sales.

Question

Quizplus · Accepted Answer

The increased probability of a recession suggests that the economic environment will be less favorable, leading to lower expected returns on investment. As a result, the manufacturer is likely to decrease its investment demand.

A Luxury Car Manufacturer Is Contemplating Investing in Its Assembly