The Fallacy of Composition Is the Erroneous View That

question 27

Multiple Choice

The fallacy of composition is the erroneous view that:

• A)​an increase in the supply of money will cause a general increase in the level of prices.
• B)​a small change in an economic variable will have an unrecognizable but significant effect on the economy.
• C)​when two events are associated, the one observed first must have caused the second.
• D)​if something is true for an individual, then it must also be true for a group.

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Definitions:

Upstream Sales

Transactions where a subsidiary sells goods or services to the parent company or another subsidiary within the same corporate group, often scrutinized for transfer pricing.

Subsidiary's Separate-entity Earnings

The net income or loss generated by a subsidiary, considered independently before any adjustments for intercompany transactions or consolidation.

Non-controlling Interest

A financial interest in a subsidiary that is not enough to exert control over its policies, usually shown as a separate element of equity in the consolidated financial statements.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense since the asset was put into use.