When the Quality of a Good Deteriorates, What Happens to the Purchasing

question 69

Multiple Choice

When the quality of a good deteriorates, what happens to the purchasing power of the dollar?

• A) It increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
• B) It increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
• C) It decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
• D) It decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

---

Definitions:

Discount

A reduction from the usual cost of something, often applied to encourage sales or offered to certain groups.

Bonds Payable

Long-term liabilities represented by negotiable certificates, indicating a promise to pay a specified sum of money plus interest at defined intervals.

Straight-line

A method of calculating depreciation of an asset where the expense is evenly distributed over its useful life.

Effective-interest

A method of calculating the interest rate on a loan or financial product that takes into account compound interest and fees, providing a true annual rate.