The Bias in the CPI Distorts Private Contracts Because

question 108

Multiple Choice

The bias in the CPI distorts private contracts because

• A)a future payment that is linked to the CPI is likely to be raised above the true increase in the price level.
• B)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.
• C)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.
• 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:

Accounts Receivable

The sum customers owe a corporation for goods or services delivered but not yet compensated.

Credit Balance

A situation in an account where the sum of credits exceeds the sum of debits.

Contra-Asset

An asset account where its balance is a negative figure, offsetting the balance of a related asset account.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is an accounting provision that estimates the amount of receivables that may not be collectible due to customer defaults.