Suppose the Quality of Televisions Changes Over Time,but the Quality

question 100

Multiple Choice

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

• A)The quality of televisions deteriorates and televisions become more expensive relative to other goods.
• B)The quality of televisions improves and televisions become less expensive relative to other goods.
• C)The quality of televisions improves and televisions become more expensive relative to other goods.
• D)The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, reflecting the company's financial condition.

Convertible Securities

Convertible Securities are financial instruments, such as bonds or preferred stocks, that can be converted into a specified number of other securities, typically common stock, at the option of the holder or issuer.

Simple Capital Structure

A company's capital structure that consists only of common shares or straightforward debt without complex financial instruments such as convertible securities.

Diluted Earnings

Earnings per share calculated using the total number of shares that would be outstanding if all possible sources of conversion, such as convertible bonds and stock options, were exercised.