During a Year of Rising Prices and Increasing Inventory, Which

question 39

Multiple Choice

During a year of rising prices and increasing inventory, which cost flow assumption would measure the smallest working capital ratio?

• A) FIFO
• B) LIFO
• C) Averaging
• D) Working capital is not sensitive to inventory cost flow assumptions.

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Definitions:

Equilibrium Interest Rate

The interest rate at which the demand for funds equals the supply of funds, balancing savings and investments in an economy.

Supply Curve

A graphical representation of the relationship between the price of a good and the quantity supplied.

Loanable Funds

The money available in the banking system for lending to businesses or consumers, influenced by interest rates and monetary policy.

Demand for Loanable Funds

The Demand for Loanable Funds represents the relationship between the interest rate and the total amount of loans that borrowers are willing to take at that rate.