A Price Index Like the CPI, Which Uses a Fixed

question 206

Multiple Choice

A price index like the CPI, which uses a fixed basket of goods from one year to the next, will tend to overstate inflation because

• A) producers are likely to change the number of goods they sell from year to year.
• B) producers will generally reduce the quality of goods as prices increase over time.
• C) consumers will tend to substitute away from goods that become more expensive.
• D) consumers will usually reduce their consumption of goods when they become relatively cheaper.

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Definitions:

Carrying Value

The book value of an asset or liability on a company's balance sheet, calculated as the original cost minus depreciation or amortization.

Unearned Ticket Revenue

Revenue received from ticket sales before the event or service has been provided; also considered a liability until earned.

Adjusting Journal Entry

An accounting record posted at the conclusion of a fiscal period with the purpose of assigning revenues and expenses to their correct time frame.

Season Tickets

Tickets sold for a set number of events or performances, typically for concerts, theater performances, or sports events.