How has the Bureau of Labor Statistics (BLS) changed the calculation of the CPI in order to take substitution bias into account?
What will be an ideal response?
Substitution bias is an overstatement of inflation by the CPI that comes from the fact that the calculation of the index is based on the assumption of an unchanging market basket of goods and services. Since prices do not all rise at the same rate (and some may not rise or may even fall), people can avoid some inflation by changing their spending pattern, that is, substituting lower-priced goods in place of those whose prices have risen. In order to take this into account, the BLS now changes the weights used in the CPI every two years, and today's CPI is a much more accurate measure of inflation than the one published a decade ago.
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The sum of consumer surplus and producer surplus is equal to
A) total profit. B) zero. C) the economic surplus. D) the deadweight loss.
When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is
A) less elastic. B) more elastic. C) vertical. D) horizontal.
Suppose both nominal GDP and real GDP increase. It can be concluded that:
A. output rose. B. both output and the price level rose. C. both output and the price level rose, but output rose at a faster rate. D. the price level rose.
In 2004, approximately what percent of household income was transferred from the top two quintiles to the lowest three quintiles?
A. Zero. B. 10. C. 15. D. 22.