"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer
What will be an ideal response?
The sentence is false because the new goods bias puts an upward bias into the CPI and its measure of the inflation rate. The new goods bias occurs when new, higher quality and more expensive goods replace older, lower quality and less expensive goods. Part of the expense of the new goods is to pay for the higher quality of the new goods. But, if the price is not adjusted (downward) to take account of the higher quality, incorporating the new good into the CPI leads to an upward bias in the prices that go to make up the CPI and hence also an upward bias in the inflation rate.
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Sweep accounts which were created to avoid reserve requirements became possible because of a change in
A) deposit ceilings. B) technology. C) government rules. D) bank mergers.
If macroeconomics looks at the economy as a whole, it focuses on which of the following?
A. households B. business firms C. unemployed people D. the division of labor
Each of the following statements describes how the political and legal environment encourages productivity except:
A. Political stability promotes economic growth. B. Well-defined property rights encourage production and saving. C. Price changes in markets give suppliers incentives to supply goods to markets. D. Pay rates determined by a governmental planning agency provide workers with stronger incentives to work hard than market wages.
The consumption function shows the relationship
A) between households' disposable income and their consumption spending. B) between consumption spending and capital gains. C) between government spending and tax collection. D) between investment and rate of return.