Economics • Economic BasicsMedium
In macroeconomic theory, 'Tobin's Q' ratio measures the relationship between:
A. Market value of a company's assets and their replacement cost✓ Correct Answer
B. Foreign direct investment and foreign portfolio investment
C. Total government revenue and total government expenditure
D. Export earnings and import payments of an economy
💡 Solution & Explanation
Tobin's Q ratio is defined as the market value of a company divided by the replacement cost of its physical assets, formulated by Nobel laureate James Tobin. A ratio greater than one implies that the market value is higher than the cost of replacing assets, encouraging firms to invest more in capital.
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