As inflation drives up prices, people attempt to find substitutes and adjust what they
buy. The resulting substitution bias problem causes the CPI to:
a. overstate the impact of higher prices on consumers.
b. consistently underestimate the true inflation rate.
c. omit the benefits of product quality improvements.
d. have larger fluctuations than other price indexes.
The relationship between inflation and unemployment shown along a Phillips curve is
a(n):
a. direct relationship.
b. quadratic relationship.
c. exponential relationship.
d. inverse relationship.
e. parabolic relationship.
Supply-siders argue that:
a. reductions in government spending cut infrastructure investment which hurts private
sector investment.
b. increases in government spending increase infrastructure investment which helps
private sector investment.
c. increases in government spending causes private sector investment to fall because the
government pushes up interest rates.
d. reductions in government spending cause private sector investment to fall because
the government pushes up interest rates by borrowing.
e. increases in government spending causes consumption spending to fall because the
government purchases push up interest rates.
Cost-push inflation is due to:
a. labor cost increases. c. raw material cost increases.
b. energy cost increases. d. all of these.
Suppose the price level falls. The result is that the:
a. aggregate supply curve would shift to the right.
b. aggregate supply curve would shift to the left.
c. general price level would rise causing a movement up the aggregate demand curve.
d. aggregate demand curve would slope downward because of the real balances effect.
Gold is a perfect medium of exchange and measure of value because of its:
a. divisibility, portability, and homogeneity.
b. divisibility and durability.
c. durability and relative scarcity.
d. durability and homogeneity.
e. divisibility, durability, and relative scarcity.
Which of the following is a criticism of capitalism?
a. Unequal distribution of income.
b. Failure to protect the environment.
c. Exploitation of workers.
d. All of these.
As the price of gasoline rose during the 1970s, consumers cut back on their use of
gasoline relative to other consumer goods. This situation contributed to which bias in
the consumer price index?
a. Substitution bias.
b. Transportation bias.
c. Quality bias.
d. Indexing bias.
The law of demand shows that:
a. there is an inverse relationship between price and quantity demanded.
b. the demand curve is positively sloped.
c. when the price of a good increases, the quantity demanded increases.
d. the supply curve is vertical.
e. individual demand is the same as market demand.
Structural unemployment is unemployment caused by:
a. temporary changes in jobs.
b. discrimination.
c. the time required to match employers and workers.
d. a mismatch between worker skills and employer requirements.
Which of the following can be a barrier to an LDC’s economic growth and
development?
a. Low population growth.
b. A low level of human capital.
c. Faster capital accumulation.
d. More infrastructure.