A multinational conglomerate finances its physical capital investments, such as upgrading its assembly lines, entirely through accumulated retained earnings rather than external debt. If the central bank implements a tight monetary policy, leading to a sharp rise in market interest rates, this is most likely to
increase its capital investment because self-funding protects the firm from the higher cost of debt.
have no impact on its capital investment because the firm does not rely on commercial bank loans.
decrease its capital investment because the opportunity cost of using its retained earnings has risen.
decrease its capital investment because higher interest rates will immediately devalue the physical capital it intends to purchase.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.