The consumer price index is calculated using a fixed basket of goods. Will this always give an accurate representation of the changing cost of living to consumers? Why or why not?
The CPI tends to overstate inflation because it uses a fixed basket of goods. The fixed basket does not allow the CPI to take into account the fact that consumers will substitute cheaper goods for goods whose price is rising. When faced with rising prices, consumers are likely to alter the basket of goods that they consume.
You might also like to view...
Studies of income mobility show
a. many lower-income households remain in the lowest quintile over time. b. a welfare trap exists over time. c. many of the lower-income households climb to middle-income and even to upper-income classes over time. d. those in the highest-income quintile stay there permanently.
The unreported or illegal production of goods and services in the economy that is not counted in GDP is called
a. money laundering b. the underground economy c. net personal disposable income d. indirect national income e. unreported capital consumption
Which of the following is a difference between a perfectly elastic demand curve and a perfectly inelastic demand curve?
a. A perfectly elastic demand curve is parallel to the horizontal axis, while a perfectly inelastic demand curve is parallel to the vertical axis. b. A perfectly elastic demand curve is parallel to the vertical axis, while a perfectly inelastic demand curve is parallel to the horizontal axis. c. A perfectly elastic demand curve is downward sloping, while a perfectly inelastic demand curve is upward sloping. d. A perfectly elastic demand curve is upward sloping, while a perfectly inelastic demand curve is downward sloping.
Which of the following countries are lacking an abundance of natural resources?