Question

A cost-of-living adjustment to consumers’ incomes that is tied to changes in the consumer price index (CPI)

	a.	improves consumers’ utility if prices change in different proportions and their indifference curves are not L-shaped
	b.	causes consumers to make the same choices they did prior to differential adjustments in prices
	c.	is designed to keep consumers’ utilities fixed
	d.	is inefficient and harmful to consumers.

Answer 1

Option b

Consumers income linked to CPI, would reduce the risk of losing consumption because of increasing cost, keeping the same quantity of consumption.