Question

True or false

1. Weakness in the dollar tends to result in lower consumer price inflation.
2. Financial leverage refers to the use of debt to finance a business
3. Having more dependents will reduce your payroll taxes.
4. More tax-payers use the standard deduction than itemized deductions to calculate theirs taxes owed
5. An individual in the 25% tax bracket will pay total income taxes equal to 25% of their taxable income.
6. A company cannot pay a dividend if it lost money in the current year, but had retained earnings.
7. An increase in the PE ratio will decrease the value of a business using capitalization of earnings

Answer 1

Note: As per answering guidelines, only the first question can be answered.

Solution:-

In simple words, consumer price inflation (as measured by CPI or consumer price index) measures the increase in prices of consumer goods and services in an economy. When the prices of consumer goods and services go up, consumer price inflation goes up and vice-versa.

There are many factors that impact the prices of consumer goods and services in an economy, out of which one of the most important is currency exchange rates. When the value of a country's currency goes down in international markets, it becomes more expensive for the domestic businesses to import finished goods, raw materials, capital goods, services, etc. This in turn results in increase in cost and thus the prices of consumer goods and services supplied in the country.

For example: Let's say that the US imports rice from Asian countries as it's domestic production is not sufficient to meet demand. The imports are currently made at $1 per kg and the importers further sells the said rice at $1.2 per kg in the US. If the US dollar weakens in international market by 10%, it would cost $1.1 to import one kg of rice which would increase the price levels of rice supplied in the US.

Conclusion:

Therefore, as can be seen from above explanation, the weakening of US dollar increases the prices of consumer goods which increases the consumer price inflation. Therefore, the statement that weakened dollar results in lower consumer price inflation is incorrect and therefore, the statement is false.