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Chapter 1: Q.2 (page 66)

What effect might a fall in stock prices have on business investment?

Short Answer

Expert verified

When theprice of a company's stock goes down, it raises less money and therefore less investment in plants and equipment.

Step by step solution

01

Step. 1 Introduction

An investment is an asset or item purchased for the purpose of generating an increase in income or capital. The importance of an investment is primarily to earn additional sources of income or to make a profit from the investment over a period of time.

02

Step. 2 Explanation

Stock price is the price of shares of a company issued by the public ownership. Higher the stock price higher will be the reputation of the industry in the market and vice-versa. When the stock prices are high industry will receive high investment.

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Most popular questions from this chapter

Explain the main difference between a bond and a common stock.

The following table lists the foreign exchange rate between U.S. dollars and British pounds (GBP) during April 2017. Which day would have been the best for converting $250 into British pounds? Which day would have been the worst? What would be the difference in pounds?

Why do managers of financial institutions care so much about the activities of the Federal Reserve System?

When there is an increase in the value of the European Union鈥檚 euro, all else equal, how will American businesses be affected? What will happen when there is a decrease in the value of the American dollar relative to the Japanese yen, given all else is equal?

If history repeats itself and we see a decline in the rate of money growth, what might you expect to happen to

a. real output?

b. the inflation rate?

c. interest rates?
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