Norma Complains That She Is Not Receiving the Full Benefit

question 88

Multiple Choice

Norma complains that she is not receiving the full benefit of her six percent raise,because inflation is two percent.You tell her that nominal incomes tend to rise with inflation,therefore

• A)she really is worse off.
• B)her real income increased eight percent.
• C)menu costs have reduced her purchasing power.
• D)she is committing the inflation fallacy.

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Definitions:

Actual

The real, measured or observed value of a quantity or cost, as opposed to estimated or budgeted figures.

Budget

A quantitative plan for acquiring and using resources over a specified time period.

Static Budget

A budget prepared for a single level of activity, without changes for variations in sales or production volumes, often used for fixed expenses.

Revenue Variance

The difference between actual revenue and budgeted or forecasted revenue, indicating the effectiveness of business strategies.