The impact of anticipated inflation and unanticipated inflation. Concept Introduction: Inflation: Inflation is the rate at which the common price level for goods and services are increasing. Anticipated inflation: When accurate prediction about inflation can be made then this type of inflation is known as anticipated inflation. This type of inflation has lesser impact on the common people as they can take the precautionary measures. Unanticipated inflation: Unanticipated inflation is the inflation that happens all of a sudden and cannot be predicted beforehand. This type of inflation has a larger impact on the common people as they cannot take any precautionary measures.

Question

Sue is a sole proprietor of her own sewing business. Revenues are $150,000 per year and raw material (cloth, thread) costs are $130,000 per year. Sue pays herself a salary of $60,000 per year but gave up a job with a salary of $80,000 to run the business. ○ A. Her accounting profits are $0. Her economic profits are - $60,000. ○ B. Her accounting profits are $0. Her economic profits are - $40,000. ○ C. Her accounting profits are - $40,000. Her economic profits are - $60,000. ○ D. Her accounting profits are - $60,000. Her economic profits are -$40,000.

Answer 1

Question

Chapter 7, Problem 4.10PA

To determine

The impact of anticipated inflation and unanticipated inflation.

Concept Introduction:

Inflation: Inflation is the rate at which the common price level for goods and services are increasing.

Anticipated inflation: When accurate prediction about inflation can be made then this type of inflation is known as anticipated inflation. This type of inflation has lesser impact on the common people as they can take the precautionary measures.

Unanticipated inflation: Unanticipated inflation is the inflation that happens all of a sudden and cannot be predicted beforehand. This type of inflation has a larger impact on the common people as they cannot take any precautionary measures.

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Sue is a sole proprietor of her own sewing business. Revenues are $150,000 per year and raw material (cloth, thread) costs are $130,000 per year. Sue pays herself a salary of $60,000 per year but gave up a job with a salary of $80,000 to run the business. ○ A. Her accounting profits are $0. Her economic profits are - $60,000. ○ B. Her accounting profits are $0. Her economic profits are - $40,000. ○ C. Her accounting profits are - $40,000. Her economic profits are - $60,000. ○ D. Her accounting profits are - $60,000. Her economic profits are -$40,000.

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