The Bias in the CPI Distorts Private Contracts Because

question 25

Multiple Choice

The bias in the CPI distorts private contracts because

• A) 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.
• B) 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.
• C) a future payment that is linked to the CPI is likely to be raised above the true increase in the price level.
• D) 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.
• E) the CPI cannot properly account for what goods and services a typical urban consumer buys.

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Definitions:

Machine-Hours

A measure of the amount of time machines are run in the production process, often used as a basis for allocating manufacturing overhead costs.

Batches

Quantities or groups of products produced or processed at the same time.

Product Margins

The profit earned on the sale of a product after subtracting the cost associated with its production and sale.

Activity-Based Costing

A method of allocating costs to products and services based on the activities they require.