Consider a Small Economy in Which Consumers Buy Only Two

question 74

Multiple Choice

Consider a small economy in which consumers buy only two goods: apples and pears.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

• A)the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year.
• B)neither the number of apples nor the number of pears bought by the typical consumer changes from year to year.
• C)the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year.
• D)neither the price of apples nor the price of pears changes from year to year.

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Definitions:

Cost Of Capital

The rate of return that a company must earn on its investment projects to maintain its market value and satisfy its investors.

Return On Investment

A financial metric used to evaluate the profitability of an investment, calculated as the return divided by the cost of the investment.

Residual Income

The income that remains after all costs and expenses, including the cost of capital, have been subtracted from net income.

Average Invested Capital

The average amount of money invested in a company over a certain period, used to evaluate the company's financial performance.