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ECON 110 - Principles of Macroeconomics Final

Terms in this set (114)

Scarcity refers to a situation in which

A) unlimited wants exceed limited resources.
B) unlimited resources exceed limited wants.
C) a country's population is larger than its resource base.
D) a nation's poverty level increases faster than its population.
A) Unlimited wants exceeds limited resources
Economists assume that rational people

A) never use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) only weigh the benefits and costs of the most desirable alternative actions.
D) respond to economic incentives.
C) only weigh the costs and the most desirable alternative actions
Economics promotes which of the following as the way to make the best decision

A) Continue an enjoyable activity as long as you do not have to pay for it.
B) Continue an enjoyable activity until it is no longer enjoyable.
C) Continue an enjoyable activity until you cannot afford to pursue it.
D) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.
D) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost
Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal cost of adding the shrub-trimming service to the standard package?

A) $10
B) $15
C) $25
D) $40
A) $10
Hours Open and Revenue
1 - 35
2 - 60
3 - 80
4 - 92
5 - 100
6 - 105

Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of additional hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour.
Refer to Table above. What is Eva's marginal benefit if she decides to stay open for two hours instead of one hour?

A) $25
B) $36
C) $60
D) $95
A) $25
Every society faces economic trade-offs. This means

A) some people live better than others do.
B) not everyone can have enough goods to survive.
C) producing more of one good means less of another good can be produced.
D) society's output cannot be made available to all.
C) producing more of one good means less of another good can be produced
The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?

A) 4 machine-made cigars
B) one-quarter of a machine-made cigar
C) $10.00
D) $2.50
A) 4 machine-made cigars
In a market economy, those who are willing and able to buy what is produced

A) receive what the government allows them to receive.
B) receive the most of what is produced.
C) receive no more than everyone else in the market.
D) solely determine what is produced.
B) Receive the most of what is produced
When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.

A) allocative efficiency
B) productive efficiency
C) equity
D) efficient central planning
A) Allocative Efficiency
Which of the following is a normative economic statement?

A) The price of milk is too high.
B) The current high price of milk is the result of reduced worldwide supply.
C) When the price of milk rises, the quantity of milk purchased falls.
D) When the price of milk rises, the cost of milk-based products rises.
A) The price of milk is too high
The branch of economics which studies how households and firms make choices, interact in markets, and how government attempts to influence their choices is called

A) macroeconomics.
B) microeconomics.
C) positive economics.
D) normative economics.
B) Microeconomics
The processes used to produce goods and services describes

A) innovation.
B) entrepreneurship.
C) technology.
D) capital.
C) technology
Which of the following is part of an economic model?

A) preferences of economic agents
B) data
C) norms
D) opinions
B) Data
The decision about what goods and services will be produced in a market economy is made by

A) lawmakers in the government voting on what will be produced.
B) workers deciding to produce only what the boss says must be produced.
C) producers deciding what society wants most.
D) consumers and firms choosing which goods and services to buy or produce.
D) consumers and firms choosing which goods and services to buy or produce.
The cost incurred from the production of an additional unit of a product

A) is a marginal cost to the firm.
B) is called a loss.
C) is called opportunity cost.
D) must be zero for a firm to be efficient.
A) is a marginal cost to the firm
All ________ economies have been political dictatorships.

A) centrally planned
B) mixed
C) market
D) mixed and market
A) centrally planned
As population declines, scarcity eventually disappears.

True
False
False
When voluntary exchange takes place, only one party gains from the exchange.

True
False
False
Examining the conditions that could lead to economic growth is an example of a macroeconomic topic.

True
False
True
"The distribution of income should be determined by the government" is an example of a normative economic statement.

True
False
True
Marginal cost is the ________ associated with a particular increase in an activity

A) total cost
B) additional cost
C) opportunity cost
D) forgone cost
B) additional cost
Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that

A) People are rational
B) People respond to economic incentives
C) Optimal decisions are made at the margin
D) Equity is more important than efficiency
B) people respond to economic incentives
Opportunity cost is defined as

A) the benefit of an activity
B) the monetary expense associated with an activity
C) the highest valued alternative that must be given up to engage in an activity
D) the total value of all alternatives that must be given up to engage in an activity
C) the highest valued alternative that must be given up to engage in an activity
Every society faces economic trade-offs. This means

A) some people live better than others do
B) not everyone can have enough goods to survive
C) Producing more of one good means less of another good can be produced
D) society's output cannot be made available to all
C) Producing more of one good means less of another good can be produced
Allocative efficiency is achieved when

A) goods and services are fairly distributed among consumers in an economy
B) firms produce the goods and services that consumers value the most
C) firms produce goods and services at the lowest cost
D) there are no shortages or surpluses in the market
B) firms produce the goods and services that consumers value the most
There is often a trade-off between

A) productive efficiency and allocative efficiency
B) limited and unlimited resources
C) voluntary and involuntary exchanges
D) economic efficiency and economic equity
D) economic efficiency and economic equity
Which of the following is a positive economic statement

A) people should not buy imported fruits and vegetables
B) the government should subsidize solar power for homeowners
C) the minimum wage law causes unemployment
D) the number of work visas should not be limited by the government
C) the minimum wage law causes unemployment
Which of the following is part of an economic model

A) assumptions
B) norms
C) opinions
D) preferences of economic agents
A) assumptions
The process used to produce goods and services describes

A) innovation
B) entrepreneurship
C) technology
D) captial
C) technology
The concept of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.

A) marginal cost
B) opportunity cost
C) normative economics
D) entrepreneurship
B) opportunity cost
________ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

A) Comparative advantage
B) Absolute advantage
C) The mixed market system
D) The production possibilities frontier model
D) The production possibilities frontier model
Increasing marginal opportunity cost implies that

A) the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.
B) the more resources already devoted to any activity, the benefits from allocating yet more resources to that activity decreases by progressively larger amounts.
C) that rising opportunity costs makes it inefficient to produce beyond a certain quantity.
D) the law of scarcity.
A) the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.
For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

A) Switzerland has the comparative advantage in chocolate.
B) Switzerland has the comparative advantage in watches.
C) Germany has the comparative advantage in watches and chocolate.
D) Germany has the comparative advantage in watches.
B) Switzerland has the comparative advantage in watches
If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the

A) factor market.
B) output market.
C) product market.
D) alcoholic beverages market.
A) factor market.
The resource income earned by those who supply labor services is called

A) wages and salaries.
B) stock options.
C) profit.
D) bonus.
A) wages and salaries.
The circular flow model demonstrates

A) the role of the government in overseeing the market system.
B) the roles played by households and firms in the market system.
C) how shortages and surpluses are eliminated in a market.
D) how demand and supply for goods and services are brought into equilibrium.
B) the roles played by households and firms in the market system.
Which of the following is an example of spending on factors of production in the circular flow model?

A) Tuan purchases a cappuccino at the student union.
B) Laurence rents a car to drive to a wedding in San Diego.
C) Yvette pays $50 to join a softball league.
D) The "Lucky Ducky" casino buys a new craps table for the casino floor.
D) The "Lucky Ducky" casino buys a new craps table for the casino floor.
Published in 1776, ________ was written by Adam Smith.

A) "The General Theory of Employment, Interest, and Money"
B) "The Communist Manifesto"
C) "The Declaration of Economics"
D) "An Inquiry into the Nature and Causes of the Wealth of Nations"
D) "An Inquiry into the Nature and Causes of the Wealth of Nations"
Which of the following countries does not come close to the free market benchmark?

A) the United States
B) Japan
C) Cuba
D) France
C) Cuba
A critical function of the government in facilitating the operation of a market economy is

A) producing goods and services for low-income households.
B) setting up and enforcing private property rights.
C) ensuring an equal distribution of income to all citizens.
D) controlling the market prices of food items.
B) setting up and enforcing private property rights.
When a celebrity has the desire to have his image protected following his death, this is best described as an example of the protection of

A) an invention.
B) a patent.
C) a trademark.
D) intellectual property.
D) intellectual property.
Any output combination along a production possibility frontier is associated with overused or unattainable resources.

True
False
False
The basis for trade is absolute advantage, not comparative advantage.

True
False
False
If a country produces only two goods, it is possible to have an absolute advantage in the production of both goods.

True
False
True
In a free market there are virtually no restrictions, or at best few restrictions, on how a good or service can be produced or sold.

True
False
True
A demand curve shows the relationship between

A) the price of a product and the quantity of the product demanded.
B) the amount of a product sellers are willing to sell at a particular price and the amount consumers are willing to buy at that price.
C) the quantity that consumers are willing and able to buy and the quantity that sellers are willing and able to offer.
D) the price of a produce and the demand for the product.
A) the price of a product and the quantity of the product demanded.
By drawing a demand curve with price on the vertical axis and quantity on the horizontal axis, economists assume that the most important determinant of the demand for a good is

A) consumer income.
B) consumer tastes and preferences.
C) the price of the good.
D) the quality of the good.
C) the price of the good.
A change in which variable will change the market demand for a product?

A) the price of the product
B) expected future prices
C) the number of firms in the market
D) the quantity of the product supplied
B) expected future prices
The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.

A) income
B) substitution
C) demographics
D) ceteris paribus
A) income
If in the market for bananas the supply curve has shifted to the right, then

A) the supply of bananas increased.
B) the quantity of bananas supplied has increased.
C) the supply of bananas has decreases.
D) the quantity of bananas supplied has decreased.
A) the supply of bananas increased.
In April, market analysts predict that the price of titanium will fall in May. What happens in the titanium market in April, holding everything else constant?

A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The quantity demanded and the quantity supplied increase.
D) The demand curve shifts to the right.
A) The supply curve shifts to the right.
The decline in the popularity of clothing made from animal fur has enticed large department stores like J. C. Penney and Sears to discontinue sales of animal-fur products. How does discontinuing sales of these products by J.C. Penney and Sears affect the animal-fur clothing market?

A) The demand curve for animal-fur clothing shifts to the right.
B) The demand curve for animal-fur clothing shifts to the left.
C) The supply curve for animal-fur clothing shifts to the right.
D) The supply curve for animal-fur clothing shifts to the left.
D) The supply curve for animal-fur clothing shifts to the left.
Which of the following describes a characteristic of a perfectly competitive market?

A) There are many buyers but few sellers.
B) There are many sellers but few buyers.
C) There are many buyers and sellers.
D) Equilibrium is achieved when demand for the product sold in the market equals the supply.
C) There are many buyers and sellers.
Which of the following is evidence of a shortage of chocolate?

A) Firms lower the price of chocolate.
B) The price of chocolate is raised in order to increase sales.
C) The equilibrium price of chocolate falls due to a decrease in demand.
D) The quantity of chocolate demanded is greater than the quantity supplied.
D) The quantity of chocolate demanded is greater than the quantity supplied.
Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase?

A) an increase in consumer income
B) a drought that sharply reduces barley output
C) a decrease in consumer income
D) unusually good weather that results in a bumper crop of barley
C) a decrease in consumer income
Assume that both the demand curve and the supply curve for DVD players shift to the left but the demand curve shifts more than the supply curve. As a result

A) both the equilibrium price and quantity of DVD players will decrease.
B) the equilibrium price of DVD players will decrease; the equilibrium quantity may increase or decrease.
C) the equilibrium price of DVD players may increase or decrease; the equilibrium quantity will decrease.
D) the equilibrium price of DVD players will increase; the equilibrium quantity may increase or decrease.
A) both the equilibrium price and quantity of DVD players will decrease.
A decrease in the number of firms in a market will cause supply to increase.

True
False
False
In response to a shortage, the market price of a good will rise. As the price rises, the demand will decrease and supply will increase until equilibrium is reached.

True
False
False
A surplus occurs when the market price is lower than the equilibrium price.

True
False
False
If the population increases and input prices increase, the equilibrium price of a product will definitely increase.

True
False
True
In a PPF, a point inside the frontier is

A) allocatively efficient
B) productively efficient
C) productively and allocatively inefficient
D) productively inefficient
D) productively inefficient
The slope of a PPF measures the ______ of producing one ore unit of a good

A) marginal revenue
B) total revenue
C) marginal cost
D) opportunity cost
D) opportunity cost
An outward shift of a nation's PPF can occur due to

A) a reduction in unemployment
B) a natural disaster like a hurricane or a bad earthquake
C) a change in the amounts of one good desired
D) an increase in the labor force
D) an increase in the labor force
If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the

A) factor market
B) output market
C) product market
D) alcoholic beverages market
A) factor market
The ability to exercise control over one's own resources within the confines of the law refers to

A) the free market
B) one's property rights
C) entrepreneurship
D) having an absolute advantage
B) one's property rights
A _________ demand curve for shampoo would be causes by a change in the price of shampoo

A) rightward shift of the
B) leftward shift of the
C) movement along the
D) positively sloped
C) movement along the
If the price of propane-fueled gas grills was to decrease, then

A) the demand for propane would decrease
B) the demand for propane would increase
C) the quantity of propane demanded would increase
D) the quantity of propane demanded would decrease
B) the demand for propane would increase
Which of the following would cause an increase in the supply of cheese?

A) a decrease in the price of wine
B) an increase in the price of cheese
C) an increase in the price of a product that producers sell instead of cheese
D) an increase in the number of firms that produce cheese
D) an increase in the number of firms that produce cheese
Which of the following is evidence of a shortage of chocolate

A) firms lower the price of chocolate
B) the price of chocolate is raise in order to reduce sales
C) the equilibrium price of chocolate falls due to a decrease in demand
D) the quantity of chocolate demanded is greater than the quantity supplied
D) the quantity of chocolate demanded is greater than the quantity supplied
Which of the following describes a characteristic of a perfectly competitive market

A) many buyers and few sellers
B) many sellers and few buyers
C) many buyers and many sellers
D) equilibrium is achieved when demand for the product sold in the market equals the supply
C) many buyers and many sellers
The difference between the ________ for a good and the ________ is called consumer surplus.

A) highest price a consumer is willing to pay; lowest price a consumer is willing to pay
B) lowest price a consumer is willing to pay; price the consumer actually pays
C) highest price a consumer is willing to pay; price the consumer actually pays
D) price the consumer actually pays; actual cost to the producer
C) highest price a consumer is willing to pay; price the consumer actually pays
A consumer is willing to purchase a product up to the point where

A) he spends all of his income.
B) the marginal benefit is equal to the price of the product.
C) the quantity demanded is equal to the quantity supplied.
D) he is indifferent between consuming and saving.
B) the marginal benefit is equal to the price of the product.
The area above the market supply curve and below the market price

A) is equal to the total amount of producer surplus in a market.
B) is equal to the marginal cost of the last unit produced.
C) is equal to the total amount of economic surplus in a market.
D) is equal to the total cost of production.
A) is equal to the total amount of producer surplus in a market.
If, in a competitive market, marginal benefit is greater than marginal cost

A) the net benefit to consumers from participating in the market is greater than the net benefit to producers.
B) the government must force producers to lower price in order to achieve economic efficiency.
C) the quantity sold is greater than the equilibrium quantity.
D) the quantity sold is less than the equilibrium quantity.
D) the quantity sold is less than the equilibrium quantity.
To affect the market outcome, a price floor

A) must be set above the black market price.
B) must be set above the legal price.
C) must be set above the price ceiling.
D) must be set above the equilibrium price.
D) must be set above the equilibrium price.
A black market is a market where buying and selling take place

A) at prices that violate government price regulations.
B) in non-licensed shops and warehouses.
C) after regular office hours.
D) on foreign soil.
A) at prices that violate government price regulations.
Increases in the minimum wage are intended to raise the incomes of low-income workers. Many economists favor a different policy to achieve this goal, a policy that avoids the deadweight losses that result from the minimum wage. What is this policy?

A) distribution of food stamps to low-income consumers
B) distribution of vouchers that can be used for rent or mortgage payments
C) the Alternative Minimum Tax
D) the earned income tax credit
D) the earned income tax credit
Which of the following is a result of government price controls?

A) Some people win and some people lose.
B) Price controls benefit poor consumers but harm producers and wealthy consumers.
C) Price controls increase economic efficiency.
D) The deadweight loss from price ceilings is greater than the deadweight loss from price floors.
A) Some people win and some people lose.
Tax incidence is the actual division of the

A) burden of the tax between buyers and sellers in a market.
B) tax revenues between government agencies.
C) tax revenues between the federal government and state governments.
D) population into different tax brackets.
A) burden of the tax between buyers and sellers in a market.
In a competitive market when there is no deadweight loss

A) consumer surplus is minimized.
B) producer surplus is minimized.
C) consumer surplus plus producer surplus is minimized.
D) consumer surplus plus producer surplus is maximized.
D) consumer surplus plus producer surplus is maximized.
When the marginal benefit equals the marginal cost of the last unit sold in a competitive market,

A) the net benefit of consumers is equal to the net benefit of producers.
B) an economically efficient level of output is produced.
C) producer surplus is equal to consumer surplus.
D) total benefit is equal to total cost.
B) an economically efficient level of output is produced.
The total amount of consumer surplus in a market is equal to the area below the market demand curve and above the market price.

True
False
True
The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss.

True
False
False
Rent control is an example of a price floor.

True
False
False
If a tax is imposed on a product, the buyer will always bear the entire burden of the tax.

True
False
False
The area above the market supply curve and below the market price

A) is equal to the total amount of producer surplus
B) is equal to the marginal cost of the last unit produced
C) is equal to the total amount of economic surplus in the market
D) is equal to the total cost of production
A) is equal to the total amount of producer surplus
a supply curve shows

A) the quantities sold at different prices
B) the marginal cost of producing one more unit of a good or service
C) the marginal benefit from buying one more unit of a good or service
D) the total cost of producing different quantities of a good or service
...
GDP is defined as the:

a. total income earned in a country in a time period by all owners of resources.
b. market value of all final goods and services produced in a country in a time period.
c. market value of all goods and services purchased in a country in a time period.
d. total expenditures by citizens of a country in a time period
b. market value of all final goods and services produced in a country in a time period
The value of which of the following items would NOT be included in GDP?

a. Fabric purchased by a family
b. Fabric purchased by a shirt factory
c. A lawn mower purchased by a family
d. A lawn mower purchased by Joe's Lawn Services company
b. Fabric purchased by a shirt factory
Adjustments for business inventory of product or inputs that are accumulated or sold during a year helps to ensure the accuracy of GDP by ensuring that GDP:

a. reflects the current cost of production as the measure of the value of a product.
b. does not include intermediate goods or capital investments.
c. includes all of the time period's production
d. eliminates double counting when products are imported
c. includes all of the time period's production
A significant part of economic activity in developing nations occurs in the _____ economy, which consists of small businesses that largely are unreported, are unregulated, and lack property rights

a. nonmarket
b. formal
c. underground
d. illegal
c. underground
Earned income plus unearned income minus taxes is a measure called

a. personal income.
b. national income.
c. disposable personal income.
d. take-home income
c. disposable personal income.
Mathematically GDP equals

a. C + I + G - NX.
b. C + I + G + NX.
c. Y + C + G - NX.
d. Y + C + G + NX.
b. C + I + G + NX.
The largest category of expenditures in U.S. GDP is:

a. consumption expenditures
b. investment expenditures.
c. government expenditures.
d. net export expenditures
a. consumption expenditures
What is the difference between gross domestic product (GDP) and net domestic product (NDP

a. NDP = GDP / Price index
b. NDP = GDP + Net productivity adjustment
c. NDP = GDP + Net exports
d. NDP = GDP - Depreciation of capital
d. NDP = GDP - Depreciation of capital
A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will

A) increase GDP and increase well-being in the economy.
B) increase GDP and decrease well-being in the economy.
C) decrease GDP and increase well-being in the economy.
D) decrease GDP and decrease well-being in the economy.
B) increase GDP and decrease well-being in the economy
Nominal GDP will increase

A) only if the price level rises.
B) only if the price level falls.
C) only if the quantity of final goods and services produced rises.
D) if either the price level or the quantity of goods and services produced rises.
D) if either the price level or the quantity of goods and services produced rises.
If the GDP deflator is less than 100, then for that year, nominal GDP ________ real GDP

A) equals
B) is greater than
C) is less than
D) may be greater than or less than
C) is less than
If the GDP deflator is 142, by how much have prices changed since the base year

A) Prices have increased by 42%.
B) Prices have increased by 142%.
C) Prices have decreased by 4.2%.
D) Prices have increased by 58
A) Prices have increased by 42%
The output of Mexican citizens who work in Texas would be included in the

A) gross domestic product of Mexico.
B) gross national product of Mexico.
C) gross national product of the United States.
D) net national product of the United States
B) gross national product of Mexico.
If Gladys sells her 2003 Jeep Cherokee for $3,500 in 2018, the sale of her car contributes $3,500 to 2018 GDP

True
False
False
If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy

True
False
True
Nominal GDP measures the value of all final goods and services at base-year prices

True
False
False
Transfer payments are subtracted from national income to get to personal income

True
False
False
The average price of goods and services in the economy is also known as

A) the price level.
B) the inflation rate.
C) a market basket.
D) the cost of living
A) the price level.
The CPI is the

A) cost of a market basket of goods and services typically consumed in the base year.
B) cost of a market basket of goods and services typically consumed in the current period.
C) average of the prices of the goods and services purchased by a typical urban family of four.
D) average of the prices of new final goods and services produced in the economy over a period of time
C) average of the prices of the goods and services purchased by a typical urban family of four.
The percent increase in the CPI from one year to the next is a measure of the

A) GDP deflator.
B) unemployment rate.
C) real interest rate.
D) inflation rate
D) inflation rate
Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961. You earn

A) 5 times as much as your grandfather in terms of real income.
B) more than 5 times as much as your grandfather in terms of real income.
C) less than 5 times as much as your grandfather in terms of real income.
D) less than 5 times as much as your grandfather in terms of nominal income
C) less than 5 times as much as your grandfather in terms of real income
The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket

A) change; overestimates
B) change; underestimates
C) do not change; overestimates
D) do not change; underestimates
A) change; overestimates
The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is

A) positively sloped.
B) negatively sloped.
C) vertical.
D) horizontal
c. Vertical
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.
A) updates the market basket every two years, rather than every 10 years
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
C) receive for the goods and services they use at all stages of production.
Which of the following describes the accuracy of the Consumer Price Index

A) Changes in the CPI accurately reflect the true rate of inflation.
B) Changes in the CPI understate the true rate of inflation.
C) Changes in the CPI overstate the true rate of inflation.
D) Changes in the CPI are unrelated to the true rate of inflation.
C) Changes in the CPI overstate the true rate of inflation.
You earned $30,000 in 2007, and your salary rose to $80,000 in 2016. If the CPI rose from 82 to 202 between 2007 and 2016, which of the following is true?

A) There was deflation between 2007 and 2016.
B) The purchasing power of your salary fell between 2007 and 2016.
C) The purchasing power of your salary remained constant between 2007 and 2016.
D) The purchasing power of your salary increased between 2007 and 2016
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