An example of the new goods bias in the CPI is the
A) introduction of higher quality brakes as standard equipment on new cars.
B) introduction of hybrid automobiles, vehicles that were not made until recently.
C) decreasing popularity of SUVs as the price of gasoline has risen.
D) switch from traditional car dealerships to low-cost Internet car buying services.
B
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Purchasing power parity is the theory that, in the long run, exchange rates move to equalize
A) the relative purchasing power of currencies across countries. B) nominal interest rates across countries. C) real GDP across countries. D) corporate profits across countries.
Assume that Country A produces 60 tons of sugar using 6 productive units and that Country B produces 40 tons of sugar using 6 productive units. Assume further that Country A produces 120 tons of coffee using 4 units of production and that Country B produces 90 tons of coffee using 4 units of production. It follows that
a. Country A has a comparative advantage over Country B in the production of coffee. b. Country A has a comparative advantage over Country B in the production of coffee and sugar. c. Country A has a comparative advantage over Country B in the production of sugar. d. Country B has a comparative advantage over Country A in the production of sugar.
Suppose an item sells for $125 in the United States and for 62,500 pesos in Chile. According to the law of one price, the nominal exchange rate (pesos/dollar) should be ________
A) 31,313 B) either $125, or 62,500 pesos, but not both C) 0.002 D) 500
Inflation:
a. reduces the cost-of-living of the typical worker. b. is measured by changes in the cost of a typical market basket of goods between time periods. c. causes the purchasing power of a dollar to rise. d. has no effect on real income.