What Does It Mean to Say That the Inflation Rate

question 38

Multiple Choice

What does it mean to say that the inflation rate last year was 5%?

• A)All prices are 5% less at the end of the year than they were at the beginning of the year.
• B)The price of specific products increased 5% between the beginning and the end of the year.
• C)On average, a typical basket of goods costs 5% more at the end of the year than it did at the beginning of the year.
• D)The general purchasing power of the dollar has increased 5% between the beginning of the year and the end of the year.

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Definitions:

Inventory Conversion Period

The average length of time to convert materials into finished goods and then to sell them; calculated by dividing total inventory by sales per day.

Operating Cycle

The Operating Cycle is the period of time it takes for a business to purchase inventory, sell products, and convert the sales into cash, reflecting the efficiency with which a company manages its core operations.

Cash

Money in the form of coins or banknotes, especially that issued by a government.

Accruals

Accounting adjustments for revenues that have been earned but not yet recorded, and expenses that have been incurred but not yet recorded.