Question

A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability...

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:

remain unchanged because auto manufacturing is well insulated from global events.
decrease because lower investment returns are expected.
increase because lower returns to the investment are expected.
increase to compensate for the lower expected sales.
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Answer #1

Question:- 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:

Correct Answer:- decrease because lower investment returns are expected.

Reson:- During the recession, the demand is likely to fall and if the manufacturer decides to invest then he will end up losing money in the form of lower returns and in fact, he will be able to fulfill the demand with the existing capacity.

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