The substitution bias means that
A. Consumer substitute towards good that have become relatively more expensive.
B. Consumers substitute towards goods that have become relatively less expense.
C. The CPI understates the increase in the cost of living each years.
D. The CPI compensates for equal changes and accurately reflect the cost of living.
E. None of the above.
B. Consumers substitute towards goods that have become relatively less expense.
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
If protective import-restricting quota are imposed by a country, in the majority of cases that nation's consumers end up
A) paying a lower price for the good than they otherwise would. B) consuming more of the good than they otherwise would. C) having more consumption choices than they otherwise would. D) consuming less of the good than they otherwise would.
If aggregate demand shifts right and the President and Congress want to use fiscal policy to reverse the change in output, they could
a. increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. b. increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. c. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. d. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level.
Figure 4.3 illustrates the demand for tacos. Assume tacos are a normal good. An increase in income would bring about a movement from
A) point a to point b. B) point c to point b. C) D2 to D1. D) D0 to D1.