Suppose there are only two goods (Good A and Good B) and the average person buys 4 of Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the Price of Good B is $10, and in the next year the Price of Good A is $4 and the Price of Good B is $12, one problem with the CPI way of calculating inflation is
A. it fails to recognize that people will substitute (to some degree) Good A for Good B and therefore understates the degree of inflation.
B. it fails to recognize that people will substitute (to some degree) Good A for Good B and therefore overstates the degree of inflation.
C. it understates the importance of Good A in the budget.
D. it understates the importance of Good B in the budget.
Answer: B
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In the money market, if the money supply decreases, the opportunity cost of holding money: a. decreases and the quantity of money demanded increases
b. decreases and the quantity of money demanded falls. c. increases and the quantity of money demanded falls. d. increases but the quantity of money demanded remains unchanged. e. increases and the quantity of money demanded also increases.
Economics is the study of how:
a. humans make decisions in the face of scarcity. b. resources are used to meet human needs. c. humans make decisions when there is an abundance of goods. d. human needs translate to business transactions.
Omega, Inc., accounts for 15 percent of total sales in its industry. It uses a highly technical process on a raw material that is difficult to acquire. The firm closely monitors pricing and output developments in its industry. What additional information is needed to classify this industry as part of an oligopoly?
a. the number of patents held by Omega’s competitors b. the number of competitors and their market shares c. the level of government restriction on the industry d. the start-up costs for a new firm entering the industry
World War II created a:
A. smaller budget surplus. B. smaller budget deficit. C. budget surplus. D. budget deficit.