The Bias in the CPI Distorts Private Contracts Because

question 95

Multiple Choice

The bias in the CPI distorts private contracts because

• A)a lender that links the interest payments on the loan to the CPI is likely to be worse off than a lender that does not link the interest payments on the loan to the CPI.
• B)a future payment that is linked to the CPI is likely to be raised above the true increase in the price level.
• C)the CPI cannot properly account for what goods and services a typical urban consumer buys.
• D)a worker that links her salary to the CPI is likely to be worse off than a worker that doesn't link her salary to the CPI.
• E)a future increase in a payment that is linked to the CPI is likely to be less than the true increase in the price level.

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Definitions:

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Contribution Format

An income statement format that separates fixed and variable costs, showing contribution margin which is sales revenue minus variable costs.

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, indicating how much contributes to covering fixed costs.

Variable Expenses

Costs that vary in proportion to changes in the level of activity or volume of production.