During a Year of Falling Prices, Which Cost Flow Assumption

question 6

Multiple Choice

During a year of falling prices, which cost flow assumption would measure the strongest cash flow position?

• A)LIFO
• B)FIFO
• C)Average
• D)Net income will remain the same under all methods.

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Definitions:

Normative Statement

An opinion-based statement that reflects values or judgments and cannot be tested or disproven by observation.

Positive

In the context of economic analysis, it often refers to a fact-based approach that attempts to describe how economic systems actually work without making judgments about their desirability.

Circular-Flow Diagram

A model that illustrates the movement of goods, services, and money between households and businesses in an economy.

Factor Market

A marketplace where services of the factors of production (labor, land, capital) are bought and sold.