Question

32.) Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

A GDP will increase in 2011.

B the producer price index will increase by more than 1.5 percent in 2011.

C interest rates will decrease in the future.

D the consumer price index will increase in the future.

34.) Assume that consumers consider rice and potatoes to be substitutes, but they buy rice more regularly and so rice is part of the fixed basket of goods, while potatoes are not. When the price of rice increases, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

A the increase in the price of rice.

B the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased.

C Both (a) and (b) are correct.

D None of the above is correct.

35.) By not taking into account the possibility of consumer substitution, the CPI

A understates the cost of living.

B overstates the cost of living.

C may overstate or understate the cost of living, depending on how quickly prices rise.

D may overstate or understate the cost of living, regardless of how quickly prices rise.

36.) When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

A more, and the cost of living increases.

B more, and the cost of living decreases.

C less, and the cost of living increases.

D less, and the cost of living decreases.

39.) If the price of Italian shoes imported into the United States increases, then

A both the GDP deflator and the consumer price index will increase.

B neither the GDP deflator nor the consumer price index will increase.

C the GDP deflator will increase, but the consumer price index will not increase.

D the consumer price index will increase, but the GDP deflator will not increase.

Answer 1

32. Suppose that in 2010, the producer price index increases by 1.5% . As a result, economists most likely will predict that the consumer price index will increase in the future. Hence,option(D) is correct.

34. When the CPI is computed following the increase in the price of rice, it takes into account the increase in the price of rice. Hence,option(A) is correct.

35. By not taking into account the possibility of consumer substitution ,the CPI overstates the cost of living. Hence,option(B) is correct.

36. When new goods are introduced , consumers have more variety from which to choose . As a result, each dollar is worth more and the cost of living decreases. Hence,option(B) is correct.

39. If the price of Italian shoes imported into the United states increases, then the consumer price index will increase but the GDP deflator will not increase. Hence,option(D) is correct.