Tobin’s q-theory of investment indicates that firms add to their stock of capital when
Tobin q=market valuation/replacement cost. q>1 makes new capital worth more than its cost, encouraging investment; book value is not replacement cost.
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Tobin’s q-theory of investment indicates that firms add to their stock of capital when
Answer and explanation
Correct answer B
Tobin q=market valuation/replacement cost. q>1 makes new capital worth more than its cost, encouraging investment; book value is not replacement cost.
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UGC NET Economics