COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The price of crackers since 2010 until now is the same
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The price of crackers since 2010 until now may be the same but the size is reduced
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The purchasing power of our money is the same over time
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The nominal value in our money is the same, but the purchasing power may change
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Detailed explanation-1: -The purchasing power of currency is the quantity of goods and services that can be bought with a monetary unit. Because of rising prices, the purchasing power of currency deteriorates over time. Outside of the country, it drops in cases of depreciation and devaluation and increases with the opposite.
Detailed explanation-2: -The purchasing power parity theory recognizes that exchange rates between two countries will adjust in the long run to reflect price level differences between two countries.
Detailed explanation-3: -Consumers lose purchasing power when prices increase. They gain purchasing power when prices decrease. Causes of purchasing power loss can include government regulations, inflation, and natural and human-made disasters. Causes of purchasing power gain include deflation and technological innovation.
Detailed explanation-4: -Inflation brings losses to fixed income receivers, lenders, and savers. As the price level rises, the purchasing power of the fixed nominal income and savings reduce.