What happens during periods when the inflation rate fluctuates widely?
What will be an ideal response?
Uncertainty about changes in relative prices causes a decrease in economic efficiency.
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If an individual requires a bag full of cash to buy a pound of cake, then the currency is: a. not recognized as a medium of exchange. b. not performing well as a store of value. c. not performing as a unit of account
d. performing well as a commodity.
If a firm enlarges its factory size and realizes higher average costs of production then
a. it has experienced economies of scale. b. it has experienced diseconomies of scale. c. it has experienced constant returns to scale. d. the long-run average cost curve slopes downward. e. the long-run average cost curve shifts upward.
Income inequalities are often greatest in the poorest countries.
Answer the following statement true (T) or false (F)
As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to:
A. overstate the impact of higher prices on consumers. B. consistently underestimate the true inflation rate. C. omit the benefits of product quality improvements. D. have larger fluctuations than other price indexes.