please explain every option detailly, thank you~ 5. Which of the following state

Question

please explain every option detailly, thank you~

5. Which of the following statements is true? amount of retained earnings it holds, it will cause the current credit supply curve of the firm to shift to the right. Assuming all else equal, if households are optimistic about their future income, it is likely to cause an upward movement along their credit demand curve. B) C) An automobile manufacturer decides to increase its retained earnings. Assuming all else equal, this will cause the current credit supply curve of the firm to shift to the left. D) Assuming all else equal, if an airline company decides to purchase new planes, it is likely to cause its credit demand curve to shift to the right.

Explanation / Answer

A) If firm decides to pay more dividends and lowers the amount of retained earnings it holds then people will be allured to buy the stocks of this firm . As the people buy more stocks or shares of this firm , the supply of credit in the economy increases . The firm gets more credit supply . So the current credit supply of the firm shifts right ( TRUE)

B) If households are optimistic about future income , they will  at present would also increase demand for goods and services . This is because that individual knows that he can take care of these extra expenses that he does today using credit card and other stuff with that increase in income that he is expecting in future . So at present the demand for credit rises . This is because peeple know they can pay back the credit taken at present using future high income . There will be rightward shift of credit demand curve since it is affected by factor other than rate of interest , no movement along the curve . ( FALSE )

C) Retained earnings is the net income of a company that is retained . The reatined eranings balance is increased with a credit . So the company either pays less dividend or incurs more profits . So the credit supply of the firm is likely to increase since this retained earning is used as credit for business . So shifts to the right . ( FALSE )

D) Purchasing new planes requires more credit . So the demand for credit rises . So credit demand shifts right . ( TRUE )

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