Before an Uneven Rise in Prices Allan Consumed 5 Bread

question 49

Multiple Choice

Before an uneven rise in prices Allan consumed 5 bread and 6 juice.After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice.Does the government payment represent a true cost-of-living adjustment (COLA) ?

• A) Yes, if the two consumption bundles lie on the same indifference curve.
• B) Yes, if the second bundle yields more utility than the first.
• C) No, the first bundle is clearly preferred.
• D) Not enough information.

---

Definitions:

Compounded Annually

This refers to the process where interest is calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Invest

The act of allocating resources, usually monetary, in the expectation of generating an income or profit.

Annual Return

The percentage change in an investment's value over a one-year period, including dividends or interest.