One of the Benefits of the Statement of Cash Flows

question 44

Multiple Choice

One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description of financial flexibility?

• A) the nearness to cash of assets and liabilities
• B) the firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities
• C) the firm's ability to pay its debts as they mature
• D) the firm's ability to invest in a number of projects with different objectives and costs

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Definitions:

Rational Expectations

The theory that people optimally use all the information they have, including information about government policies, when forecasting the future.

Sacrifice Ratio

A measure of the economic cost associated with reducing inflation, often calculated as the percentage loss in output per percentage point decrease in inflation.

Inflation Expectations

The anticipation by consumers and businesses of the rate at which prices will rise in the future.

Phillips Curve

An economic theory suggesting an inverse relationship between the rate of inflation and the rate of unemployment within an economy.