Question :
21) Most economists believe that the biases in the consumer : 1266900
21) Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about
A) one-half to one percentage point.
B) one to two percentage points.
C) one quarter percentage point.
D) one and one-half percentage points.
22) Which of the following would be a consequence of substitution bias in the CPI?
A) Social Security payments would not adequately compensate retired workers for inflation.
B) Businesses would over-compensate employees for inflation when giving the cost of living rises.
C) The inflation rate based on the CPI would under-estimate the true level of inflation.
D) Judges would award child support payments that would not adequately keep up with the true cost of inflation.
23) To reduce the bias in the consumer price index, the Bureau of Labor Statistics
A) updates the market basket every two years, rather than every 10 years.
B) updates the market basket every 10 years, rather than every two years.
C) incorporates substitutions by consumers when prices of specific products rise rapidly.
D) incorporates substitutions by consumers when prices of specific products fall rapidly.
24) The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index. Which of the following is not one of the steps taken to reduce the bias?
A) using statistical methods to reduce the size of the quality bias
B) updating the market basket every two years, rather than every 10 years
C) incorporating substitutions by consumers when prices of specific products rise rapidly
D) conducting a point-of-purchase survey to track where consumers actually make their purchases
25) The producer price index measures the prices that firms
A) pay for imported natural resources that go into the production process.
B) receive for the goods and services they export.
C) receive for the goods and services they use at all stages of production.
D) pay for labor, whether or not the labor is foreign or domestic.
26) The inflation rate measures the average prices of goods and services in the economy.
27) Housing is the largest component of the U.S. CPI market basket.
28) The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household.
29) Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?
Table 13-7
Product
Quantity
Base Year Price (2001)
Price (2009)
Price (2010)
Tacos
5
$1.50
$2.00
$2.25
Earplugs
10
6.00
7.50
7.00
Toothbrushes
3
2.50
3.50
3.50
30) Refer to Table 13-7. Consider a simple economy that produces only three products: tacos, earplugs, and toothbrushes. Use the information in the table to calculate the inflation rate for 2010, as measured by the consumer price index.
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