When Is It Not Appropriate to Use an Encumbrance System

question 21

Multiple Choice

When is it not appropriate to use an encumbrance system?

• A)When there is a significant lag between purchase orders and the receipt of goods
• B)When reporting is done on an expenditure basis
• C)When only a small part of expenditures for goods and services are discretionary
• D)When commitments and expenditures are made on a decentralized basis

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Definitions:

Real Interest Rates

This is the interest rate after inflation adjustment, demonstrating the true cost of loans or the actual gains from savings accounts.

Nominal Interest Rates

The interest rates before adjustments for inflation, indicating the gross return on financial investments or loans.

Inflation

The rate of increase in the general price index for goods and services, leading to a decrease in how much can be bought.

Purchasing Power

The amount of goods or services one can obtain with a single unit of currency, determining its value.