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?
The statement confuses the price level with the inflation rate. Inflation is a flow variable—it measures changes in prices from year to year, while the price level is a stock variable. The statement observes the price level, not the inflation rate.
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If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 5 rand/US$, then
A) there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop. B) there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop. C) here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise. D) there is no arbitrage opportunity.
Which of the following statements is TRUE regarding the textbook used in this course?
A) The textbook presents only economic theory, so no value judgments are involved in the text. B) The textbook does not include normative statements. C) The microeconomic section of the book includes only positive analysis while the macroeconomic section includes normative analysis. D) The selection of topics included in the book involves value judgments as well as economic theory.
When negative spending shocks occur, transfer payments automatically fall
a. True b. False
An economy at short-run equilibrium with a recessionary gap may:
a. suffer high unemployment for a long time b. have hyperinflation for a considerable period of time. c. suffer huge losses due to high input prices for a long time. d. have a large unsold stock of inventories.