If Everyone Buys the Same Goods Every Year and the Price

question 85

Multiple Choice

If everyone buys the same goods every year and the price of housing rises by 38 percent,it is

• A) certain the consumer price index (CPI)has increased,and if your nominal wage has risen by less than 38 percent,your real wage has fallen.
• B) certain the consumer price index (CPI)has increased,and if your nominal wage has risen by more than 38 percent,your real wage has risen.
• C) possible that the consumer price index (CPI)has increased,but it is certain your real wage has fallen.
• D) possible that the consumer price index (CPI)has increased; however,it is certain your real wage has risen if,and only if,your nominal wage increased by more than 19 percent because housing accounts for exactly 50 percent of the CPI.
• E) not possible to tell what happened to the consumer price index (CPI)because other than for housing,we do not know what happened to the prices of any of the other goods.

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Definitions:

Direct Labor Cost

This cost includes wages and benefits paid to employees who are directly involved in producing goods or providing services.

Product Costs

Expenses directly associated with the production of goods, including materials, labor, and overhead costs.

Period Costs

Expenses that are not directly tied to production and are expensed on the income statement in the period they are incurred, such as selling and administrative expenses.

Prepaids Insurance

Prepaid insurance refers to insurance premiums that are paid in advance and represent a future economic benefit for the period they cover.