A New Financial Innovation Results in People Switching Their Funds

question 331

Multiple Choice

A new financial innovation results in people switching their funds from checking deposits to savings accounts. The quantity of M1 ________ and the quantity of M2 ________.

• A) decreases; decreases
• B) increases; decreases
• C) decreases; does not change
• D) decreases; increases

Identify the normal balances for different types of accounts (assets, liabilities, equity, revenue, and expenses).

Comprehend the structure and purpose of a T-account.

Recognize how transactions affect account balances within the double-entry accounting system.

Analyze the impact of transactions on a company’s financial statements.

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Definitions:

Operating Cash Flow

The cash generated from normal business operations, reflecting the company’s ability to generate sufficient revenue to cover its operational expenses.

Required Rate Of Return

The minimum percentage return an investor expects to receive from an investment to compensate for its risk.

Initial Cash Investment

The amount of cash used to fund a new investment or project at its outset.

Salvage Value

The anticipated amount to be received from the sale of an asset when it is no longer useful.