A Note of Caution in Interpreting the Debt Ratio Is

question 56

Multiple Choice

A note of caution in interpreting the debt ratio is that

• A)All debt decreases liquidity ratios.
• B)Financing arrangements,such as leases,may be off-balance sheet arrangement and not be classified as debt on the balance sheet.
• C)Financing arrangements,such as leases,may be classified as debt when in fact they do not require interest payments.
• D)Long-term debt may be inflated because of a desire to reduce the current ratio.

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Definitions:

Tax Revenues

Governments' income derived from tax levies.

Campaign Pledge

A promise or commitment made by a political candidate or party to the electorate as part of their platform during an election campaign.

Balanced Budget Amendment

A proposed federal constitutional rule requiring that the government not spend more than its income in a fiscal year, aimed at ensuring fiscal responsibility.

Equilibrium GDP

Equilibrium GDP, or Gross Domestic Product, is the level of output where aggregate demand equals aggregate supply, resulting in no unintended changes in inventories.