What is one way to adjust the CPI for substitution bias? A) Use the Paasche index. B) Use the Laspeyres index. C) Multiply the Paasche Index and the Laspeyres index. D) Take the geometric mean of the Paasche index and the Laspeyres index. ANSWER A
Date: September 9th, 2020
A good may be inferior at some income levels and normal at others. Indicate whether the statement is true or false ANSWER True . A consumer may demand more of the good at low income levels and less of the good at higher income levels. Hamburger or macaroni and cheese dinners may be examples […]
Date: September 9th, 2020
A Consumer Price Index (CPI) adjustment overcompensates for inflation because it ignores A) the income effect when relative prices change. B) the substitution effect when relative prices change. C) that some goods are inferior. D) that the substitution effect may offset the income effect. ANSWER B
Date: September 9th, 2020
Before an uneven rise in prices Allan consumed 5 bread and 6 juice. After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice. Does the government payment represent a true cost-of-living adjustment (COLA)? A) Yes, if the two consumption bundles lie on the same indifference […]
Date: September 9th, 2020
If the Engel curve for a good is upward sloping, the demand curve for that good must be downward sloping. Indicate whether the statement is true or false ANSWER True . If the Engel curve is upward sloping, the good is normal. As a result, the income effect will reinforce the substitution effect and […]
Date: September 9th, 2020
Which of the following is the geometric mean of 4 and 9? A) 6.5 B) 6 C) 36 D) 3.6 ANSWER B
Date: September 9th, 2020
Using a Paasche index to calculate the Consumer Price Index (CPI) A) weights quantities with current prices. B) weights prices with base-year quantities. C) weights quantities with base-year prices. D) weights prices with current year quantities. ANSWER D
Date: September 9th, 2020
A true cost-of-living adjustment (COLA) in response to a change in prices would compensate consumers so that they would be able to A) purchase the same bundle they purchased before prices changed. B) achieve the same level of utility they did before prices changed. C) face the same choices they did before prices changed. D) […]
Date: September 9th, 2020
Due to inflation, nominal prices are usually A) equal to real prices. B) smaller than real prices. C) larger than real prices. D) a constant proportion different from real prices. ANSWER C
Date: September 9th, 2020
If a consumer is compensated for the income effect that occurs when the price of a good increases, then his demand curves can never slope upward. Indicate whether the statement is true or false ANSWER True . The demand curve would only include the substitution effect. Even for Giffen goods, dq/dp is negative holding […]
Date: September 9th, 2020
