Suppose Hypothetically That You Buy a Lot of Food Such

question 104

Multiple Choice

Suppose hypothetically that you buy a lot of food such as tofu, veggie burgers, and organic fruit that are not included in the market basket used to compute the CPI. In addition, suppose that all of these goods have become cheaper over the last year, while the overall CPI has increased by 6 percent. Then which of the following is true ? ​

• A) ​The CPI will understate the negative impact of inflation on your purchasing power and standard of living.
• B) ​The CPI will still accurately state the negative impact of inflation on your purchasing power and standard of living.
• C) ​The CPI will overstate the negative impact of inflation on your purchasing power and standard of living.
• D) ​None of the answers above are correct.

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Definitions:

Required Rate Of Return

The minimum rate of return on an investment that investors expect to receive, taking into account the risk involved.

Turnover

The rate at which inventory is sold or replaced over a specific period, or in human resources, the rate employees leave and are replaced in a company.

Residual Income

The income that exceeds the minimum required return on investment, often used as a performance measure in managerial accounting.

Required Rate Of Return

The minimum annual percentage return an investor expects to achieve from an investment, considering the risk involved.