Instead of Increasing Its Long-Term Debt by Borrowing Money from a Bank

question 37

Multiple Choice

Instead of increasing its long-term debt by borrowing money from a bank to purchase new stereo equipment,Jay's Jams Inc.decides to lease the equipment on a long-term basis.How will the long-term debt ratio differ if the lease option is selected over the bank-debt option?

• A) The ratio will be lower under the leasing option.
• B) The ratio will be higher under the leasing option.
• C) The ratio will be the same regardless of the financing method selected.
• D) The ratio effects are unknown without the amount of the lease obligation.

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Definitions:

Money Supply

The total amount of monetary assets available in an economy at a specific time, including cash, bank deposits, and liquid assets.

Classical Economists

Economists from the 18th and 19th centuries who focused on free markets, supply and demand, and the idea of self-regulating economies.

Keynesians

Economists and followers of the economic theories of John Maynard Keynes, focusing on government intervention to mitigate the adverse effects of economic recessions.

Government Intervention

Involves actions taken by a government to affect the economy, typically through regulations, subsidies, tariffs, or monetary policies.