Suppose medical care makes up 10 percent of the CPI index, and that prices rise in the medical care area faster than in the rest of the economy. An elderly couple spends 30 percent of their income on medical care. For this couple, the CPI
A. understates the inflation rate because the CPI always understates inflation.
B. is a good measure of inflation since the bias inherent in the CPI is offset by the increased emphasis on health care for this family.
C. overstates the inflation rate because this family is not typical of the country as a whole.
D. understates the inflation rate because of the importance of medical care for this family.
Answer: D
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For a fixed resource like land to be allocated to its highest valued use
a. a good social plan is needed. b. it should be allocated to those who will pay the most. c. it should be taxed at 100 percent of its rental value. d. it should be offered to those who promise to put it to its best use.
In the above figure, the movement from point C to point A is the result of
A) a decrease in the price of coffee. B) an increase in the price of coffee. C) a decrease in the price of gasoline. D) an increase in the price of gasoline.
To infer the political tendencies of the students at your college/university, you sample 150 of them. Only one of the following is a simple random sample: You
A) make sure that the proportion of minorities are the same in your sample as in the entire student body. B) call every fiftieth person in the student directory at 9 a.m. If the person does not answer the phone, you pick the next name listed, and so on. C) go to the main dining hall on campus and interview students randomly there. D) have your statistical package generate 150 random numbers in the range from 1 to the total number of students in your academic institution, and then choose the corresponding names in the student telephone directory.
The total value of all final goods and services produced in the economy during a given year, measured in current market prices, is
a. gross national product b. gross domestic product c. net national income d. economic growth e. aggregate demand