If You Have $5,000 in Wealth and the GDP Deflator

question 291

Multiple Choice

If you have $5,000 in wealth and the GDP deflator decreases 20 percent, then

• A) the $5,000 will buy fewer goods and services.
• B) the $5,000 will buy more goods and services.
• C) the real value of the $5,000 remains constant.
• D) the real value of the $5,000 decreases.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, including rent, salaries, and insurance, providing contrast to variable costs.

Operating Income

Earnings before interest and taxes (EBIT), calculated as gross income minus operating expenses, excluding non-operating income and expenses.

Variable Product Cost

Costs that vary directly with the level of production, such as materials and labor.

Total Fixed Overhead

The sum of all costs that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance.