Wages Are Often Tied to Expected Rates of Inflation; Thus,one

question 156

Multiple Choice

Wages are often tied to expected rates of inflation; thus,one reason why inflation is important is that

• A) when wages rise faster than inflation,companies lose money.
• B) when wages rise slower than inflation,workers suffer but corporate profits increase.
• C) inflation creates uncertainty about costs and prices,which affects both employees and employers.
• D) all inflation will eventually lead to hyperinflation,political instability,and war.
• E) menu costs mean restaurants have to print new menus,which is costly and unpleasant.

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Definitions:

Residual Income

The income that remains after deducting all required costs of capital from the net operating income.

Investment Centers

Divisions or units within an organization that are responsible for both generating revenue and controlling costs, thus having an impact on the investment returns.

Return On Investment

A measure of the profitability of an investment, calculated as the net profit from the investment divided by the cost of the investment.

Residual Income

The amount of income that an individual or business has after all personal debts and expenses, including the cost capital, have been paid.