Rauh Corporation Had a Current Ratio of 2

question 46

Multiple Choice

Rauh Corporation had a current ratio of 2.0 at the end of 2010. Current assets and current liabilities increased by equal amounts during 2011. The effects on net working capital and on the current ratio, respectively, were

• A) no effect; increase.
• B) no effect; decrease.
• C) increase; increase.
• D) decrease; decrease.

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Definitions:

Federal Reserve

The central banking system of the United States, responsible for conducting national monetary policy, supervising and regulating banks, maintaining financial stability, and providing financial services.

Interest-Rate Effect

Explains how changes in the interest rate influence the level of spending on consumer goods and services, typically suggesting that higher rates reduce spending.

Money Market

A segment of the financial market where short-term financial assets are traded, facilitating the borrowing and lending of short-term funds.

Liquidity Preference Theory

A theory that suggests individuals prefer to have their resources in liquid form as opposed to investing in long-term assets, affecting interest rates and economic activity.