Falling Capital Asset Prices Can Have Which of the Following

question 41

Multiple Choice

Falling capital asset prices can have which of the following effects on a country's economy?

• A)Decreased capital asset prices decrease wealth and with it consumption, borrowing, output, and employment.
• B)Decreased capital asset prices can adversely affect financial institutions by decreasing the value of their assets while leaving their liabilities largely unchanged.
• C)Decreased stock, bond, and real estate prices can cause bankruptcies of financial and non-financial firms on such a large scale that the financial system and real sectors of an affected economy collapse.
• D)All of the above are correct.

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Definitions:

LIFO Conformity Rule

A requirement that if the Last-In, First-Out (LIFO) inventory valuation method is used for tax purposes, it must also be used for financial reporting.

SEC

Securities and Exchange Commission, an independent federal agency responsible for enforcing federal securities laws and regulating the securities industry and stock and options exchanges in the United States.

International Accounting Standards

A set of older accounting standards that were replaced by IFRS, previously developed by the International Accounting Standards Committee (IASC) to guide financial reporting internationally.

FIFO

First In, First Out, an inventory valuation method where the first items produced or acquired are the first ones to be expelled from inventory.