In Periods of Inflation, Accounting Depreciation Is __________ Relative to Replacement

question 5

Multiple Choice

In periods of inflation, accounting depreciation is __________ relative to replacement cost, and real economic income is________.

• A) overstated; overstated
• B) overstated; understated
• C) understated; overstated
• D) understated; understated
• E) correctly stated; correctly stated

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Definitions:

Economic Rent

Income derived from the ownership of a factor of production that is in fixed supply, exceeding what is necessary to keep it in its current use.

Employment Gains

The increase in the number of people who are employed, reflecting positive growth in the job market.

Productivity Growth

An increase in the efficiency of producing goods and services, measured by the output per unit of input over a specified period.

Real Wages

Wages adjusted for inflation, reflecting the purchasing power of income.