Changes in the CPI overstate the true inflation rate due to four? "biases." If apple prices rise rapidly during the month while orange prices? fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this consumer? behavior?
A. the increase in quality bias
B. the substitution bias
C. the new product bias
D. the outlet bias
Ans: B. the substitution bias
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Three workers run a house painting business and always work the same number of hours together. The paint they use requires applying two coats. Each worker paints 200 square feet per hour using a roller or 80 square feet per hour using a brush. If a technological advance provides a paint that only requires one coat, their average labor productivity per hour as a team:
A. increases. B. remains the same. C. may either increase or decrease. D. decreases.
If the aggregate price level adjusts slowly over time, then an expansionary monetary policy lowers
A) only the short-term nominal interest rate. B) only the short-term real interest rate. C) both the short-term nominal and real interest rates. D) the short-term nominal, the short-term real, and the long-term real interest rates.
According to the real business cycle theory, what is the principal cause of business cycle fluctuations?
What will be an ideal response?
When the Fed buys T-bills from banks:
A. the demand for bank reserves rises. B. the supply of T-bills rises. C. the supply of bank reserves rises. D. the supply of bank reserves falls.