In Felixania,cat Food Constitutes 45 Percent of the Typical Basket

question 128

Multiple Choice

In Felixania,cat food constitutes 45 percent of the typical basket of goods for a typical consumer,dog food constitutes 3 percent,and all other goods constitute the remaining 52 percent.Assume the price of cat food rises by 4 percent,the price of dog food falls by 10 percent,and prices remain constant for all other goods.Based on the information given,we can definitely say

• A) because the price of dog food fell by more than the price of cat food rose,the consumer price index (CPI)must have decreased.
• B) the consumer price index (CPI)in Felixania is more than in the previous year.
• C) if consumers get a 4 percent pay raise,they are worse off in terms of their real income compared to inflation as measured by the Felixanian consumer price index (CPI).
• D) because cat food is a luxury (as is dog food),consumers are certainly no worse off in terms of their real wages as measured by the Felixanian consumer price index (CPI).
• E) menu costs have decreased.

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Definitions:

Payee

The party in a financial transaction who receives payment.

Note Receivable

A written promise that entitles the holder to receive a specified amount of money from another party at a future date.

Interest

A charge for borrowed money, generally a percentage of the amount borrowed.

Maturity Value

The total amount payable to an investor at the end of a fixed-income security's life, including both the principal and interest.