The Concepts of Stock and Flow Are Involved in Firms

question 31

Multiple Choice

The concepts of stock and flow are involved in firms' demand for labour and for capital. Which of the following statements is correct?

• A) A firm hires a flow of labour services; and purchases a stock of physical capital, which provides a flow of services.
• B) Labour and capital are both flow variables because their values change over time.
• C) Labour and capital are both stock variables because they are providing service at any given moment in time.
• D) A firm's demand for both labour and capital is determined by the marginal value each provides to the stock of labour and capital, respectively.
• E) A firm hires a stock of labour services; and purchases a stock of physical capital, which provides a flow of services.

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Definitions:

Times Interest Earned Ratio

This ratio measures a company's ability to meet its debt obligations based on its current income, calculated as earnings before interest and taxes divided by interest expense.

Income Before Taxes

The amount of revenue left after deducting all operating expenses, interest, and depreciation, but before paying income taxes.

Straight-Line Method

A depreciation technique where an equal amount of depreciation is charged for each year of the asset's useful life.

Semiannual Interest

Interest that is calculated and paid twice a year, often used in the context of bonds and loans.