What Would Be the Effect on the Current Ratio If

question 4

Multiple Choice

What would be the effect on the current ratio if the company paid $10,000 on its accounts payable?

• A)The current ratio would increase since it is now greater than 1 to 1.
• B)The current ratio would decrease since it is now greater than 1 to 1.
• C)This transaction would have no effect on the current ratio.
• D)The current ratio would change in the same direction whether the ratio were now greater than or less than 1 to 1.

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Definitions:

Utility Function

A utility function is a mathematical representation of a consumer’s preferences, ranking different bundles of goods according to levels of satisfaction.

Indifference Curve

A graph showing different bundles of goods between which a consumer is indifferent, meaning they would derive the same level of satisfaction from any combination.

Bliss Point

The optimal quantity of consumption where any further increase or decrease would lead to a lower level of satisfaction for the consumer.

Indifference Curves

Graphical representations in microeconomics to illustrate different combinations of goods between which a consumer is indifferent.