Richard Receives Government Transfer Payments and Currently Consumes Five Guns

Richard receives government transfer payments and currently consumes five guns and six 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 five guns and six goose livers.Does this constitute a true cost-of-living adjustment?

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.