Recall That the Laspeyres Price Index (P

question 4

Multiple Choice

Recall that the Laspeyres price index (P.I.) uses the old bundle as weights and the Paasche price index uses the new bundle as weights.If the prices of all goods double and your income triples,

• A)your income increase has exceeded the increase in the Laspeyres P.I.but may not have exceeded the increase in the Paasche P.I.
• B)your income increase has exceeded the increase in the Laspeyres P.I.and has also exceeded the increase in the Paasche P.I.
• C)your income increase has exceeded the increase in the Paasche P.I.but may not have exceeded the increase in the Laspeyres P.I.
• D)you would need to know the old and new consumption bundles to compare your income change with the change in price indexes.
• E)None of the above.

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Definitions:

Fixed Asset Additions

Expenditures involving the acquisition or improvement of long-term assets that increase the company’s operational capacity or extend the asset's useful life.

Accounts Receivable

Amounts owed by customers to a company for goods or services provided on credit.

Income Statement

An account that tracks a business's financial transactions, including income and expenditures over a designated timeframe, leading to a final profit or loss.

Financing Activities

Transactions related to raising capital and repaying investors, including issuing shares, taking out loans, and paying dividends.