Question

Future legislation banning fuel inefficient cars could lead to a reduction in investment in the auto industry because of Select one: a. an expected increase in the depreciation rate b. an expected increase in interest rates c. an expected decline in the price of these cars d. all of the above

Answer 1

Legislation banning fuel-inefficient cars would likely cause a decline in investment in the auto industry due to (Option C) an expected decline in the price of these cars.

Step-by-step explanation:

As the market anticipates restrictions, the demand for fuel-inefficient vehicles would decrease, leading to a decline in their price. Consequently, investors might be wary of allocating funds to an industry facing a foreseeable reduction in the value of its products. This decrease in demand could result in excess inventory, which could further depreciate the value of these vehicles, influencing investment decisions negatively.

While factors like increased depreciation rates or interest rates might affect investment in specific contexts, the primary concern regarding reduced investment in this scenario stems from the projected decline in the price of fuel-inefficient cars due to regulatory changes, making option c the most plausible reason for decreased investment in the auto industry.

Correct answer: c. an expected decline in the price of these cars.