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.
Answer: A
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If planned aggregate expenditure is greater than total production
A) actual inventories will equal planned inventories. B) the economy is in equilibrium. C) firms will experience an unplanned increase in inventories. D) GDP will increase.
In the one-period valuation model, the value of a share of stock today depends upon
A) the present value of both the dividends and the expected sales price. B) only the present value of the future dividends. C) the actual value of the dividends and expected sales price received in one year. D) the future value of dividends and the actual sales price.
Gordon's plots of the effectiveness lags of monetary policy over the periods 1961-1975, 1976-1990, and 1991-2007 show the effectiveness lags have become ________ and the overall response of GDP to monetary policy has ________
A) shorter, decreased B) shorter, increased C) longer, decreased D) longer, increased
As the multiplier process works through time, the size of the multiplier effect becomes
a. larger. b. smaller. c. constant. d. explosive.