A Consumer Price Index (CPI) adjustment overcompensates for inflation because it ignores
A) the income effect when relative prices change.
B) the substitution effect when relative prices change.
C) that some goods are inferior.
D) that the substitution effect may offset the income effect.
B
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Reducing the marginal tax rate on income will
A) raise the return to entrepreneurship and encourage the opening of new businesses. B) increase the after-tax return on saving, and encourage saving. C) reduce the tax wedge faced by workers and increase labor supplied. D) All of the above are correct.
The demand for silver decreases, other things equal, when
A) the gold market is expected to boom. B) the market for silver becomes more liquid. C) wealth grows rapidly. D) interest rates are expected to rise.
The quantity of capital demanded changes when one of the nonprice determinants of demand change
a. True b. False Indicate whether the statement is true or false
An appropriate test of the effectiveness of an economic model is
A. the number of economists who have worked on the model. B. the number of assumptions which the economist has made. C. the model's ability to predict future economic activity. D. the number of variables contained within the model.