7) When stock prices fall:

A) an individual's wealth is not affected nor is her willingness to spend.

B) a business firm will be more likely to sell stock to finance investment spending.

C) an individual's wealth may decrease but her willingness to spend is not affected.

D) an individual's wealth may decrease and her willingness to spend may decrease.

Question

Kade Molina

Business

1 September, 18:44

7) When stock prices fall:

A) an individual's wealth is not affected nor is her willingness to spend.

B) a business firm will be more likely to sell stock to finance investment spending.

C) an individual's wealth may decrease but her willingness to spend is not affected.

D) an individual's wealth may decrease and her willingness to spend may decrease.

+2

Answers (1)

Know the Answer?

Katelynn Parrish · Answer 1

The correct answer is letter "D": an individual's wealth may decrease and her willingness to spend may decrease.

Explanation:

In case a trader is in a long stock position and the stock price falls, the investor will be losing money. His or her buying power is reduced as well as long as the stock price keeps falling. The trader has two options: whether to sell the stock to cover the loss immediately or to wait to find out if there is a recovery movement in the stock that at least could allow the investor to cover the trade breaking even.