If firm-level asymmetric information becomes more severe, then
A) investment demand decreases.
B) investment demand does not change.
C) investment demand increases.
D) there is an unambiguous effect on investment demand.
E) investment demand decreases if the substitution effect dominates, increases if the income effect dominates.

Question

Quizplus · Accepted Answer

Asymmetric information refers to a situation where one party in a transaction has more information than the other party. In the case of firm-level asymmetric information, this means that the firm has information that investors do not have. This can lead to investors being hesitant to invest in the firm, which decreases investment demand.

If Firm-Level Asymmetric Information Becomes More Severe, Then