Suppose that the price of chicken rises sharply compared to the price of turkey. In response, consumers buy more turkey and less chicken than they did in the CPI base year. In this situation the CPI will tend to ________ inflation as a result of ________ bias.
A. overstate; quality adjustment
B. accurately measure; substitution
C. overstate; substitution
D. understate; substitution
Answer: C
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Critically evaluate the statement "Honolulu is an expensive place to live. Therefore the inflation rate must be high in Honolulu."
What will be an ideal response?
Since 2002, the Fed has shifted to expansionary monetary policy, then to restrictive policy, and then back to expansionary monetary policy. Policy shifts of this type are most likely to
a. promote economic stability and stimulate employment. b. keep the general level of prices relatively stable because the periods of restrictive policy will just offset the periods of expansion. c. help promote economic stability because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly. d. promote instability because the time lags of monetary policy are long and variable.
Raising taxes on gasoline __________ the price of gasoline and __________ the number of gallons purchased.
Fill in the blank(s) with the appropriate word(s).
A noncooperative game situation may occur when
A. firms merge. B. firms collude. C. firms find collusion too costly. D. firms agree to price fixing.