Richard Receives Government Transfer Payments and Currently Consumes 5 Guns

Multiple Choice

Richard receives government transfer payments and currently consumes 5 guns and 6 goose livers.Assume the price of guns decreases by 10% and the price of goose liver increases by 20%.The government raises Richard's transfer payments so he can still afford 5 guns and 6 goose livers.Does this constitute a true cost-of-living adjustment (COLA) ?

A) No. Richard is overcompensated.
B) No. Richard is undercompensated.
C) Yes. The payment just achieves the right level of compensation.
D) Not enough information.