If Housing Prices Increase by 25 Percent and the Price

question 1

Multiple Choice

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent,then

• A) the consumer price index (CPI)would definitely fall during the year in question because housing prices do not constitute the majority of the CPI.
• B) the consumer price index (CPI)would definitely rise during the year in question because housing prices do constitute the majority of the CPI.
• C) the consumer price index (CPI)would rise by about 1.5 percent because housing constitutes about half of the market basket in the CPI.
• D) because housing spending is considered an investment,the producer price index (PPI)but not the consumer price index (CPI)would be the only price index affected by the change.
• E) the consumer price index (CPI)would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000.

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Definitions:

Expected Cash Flows

The projected amounts of money to be received or paid out by a business within a specified period.

FASB Concepts

Theoretical principles and frameworks established by the Financial Accounting Standards Board to guide the development of accounting standards.

Interest Rate

The percentage at which interest is charged or paid on borrowed or saved money, typically expressed as an annual percentage.

Expected Cash Flows

The projected amount of cash that is anticipated to be generated or expended over a certain period in the future.