Final answer:
An increase in inventory will increase a firm's current ratio but not affect its quick ratio, as the quick ratio excludes inventory, which is less liquid than other current assets.
Step-by-step explanation:
The student's question pertains to the effect of changes in specific balance sheet items on a firm's current ratio and quick ratio. To answer the question, an increase in inventory will increase a firm's current ratio but will not affect its quick ratio. The current ratio measures a company's ability to cover its short-term obligations with its current assets, which include cash, accounts receivable, and inventory. The quick ratio, however, excludes inventory from the current assets as inventory is not as liquid as cash and receivables. Hence, an increase in inventory would make the current ratio rise as inventory is part of current assets, but it would not change the quick ratio since inventory is not included in its calculation.