Chapter 12 Unemployment and Inflation

| November 9, 2018

18)
Economists believe that the CPI overstates actual price changes by as much as
________ to ________% each year.
A)
1; 2
B)
2; 3
C)
0.5; 1
D)
0.5; 1.5

19)
Cost-of-living adjustments are
A)
automatic wage changes based on the CPI which are included in some union
contracts.
B)
changes in the basket of goods used in calculating the CPI.
C)
averages of neighboring years’ base prices used in constructing the CPI.
D)
quality measurements included in the calculation of the CPI.

20)
When wages or benefits are automatically increased based on the reported
inflation rate, it is called the ________ adjustment.
A)
natural flow of money
B)
cost-of-living
C)
change in exports
D)
change in imports

21)
Social security payments automatically increase when the CPI goes up because of
the
A)
age of the recipient.
B)
years receiving social security.
C)
cost-of-living adjustments.
D)
individual being married or unmarried.

Recall
the Application about the time involved in including cell phones in the
calculation of the CPI to answer the following question(s).

22)
Recall the application. Cell phones were introduced to the public in 1983, but
it took the Bureau of Labor Statistics ________ to include them in calculating
the CPI.
A)
3 years
B)
7 years
C)
15 years
D)
24 years

23)
Recall the application. The failure of including cell phones in a timely manner
when calculating the CPI caused the telecommunications component of the price
index
A)
to be biased downward.
B)
to be biased upward.
C)
to actually register no perceptible bias.
D)
to become negative.

24)
Recall the application. The bias in the CPI would be ________ if new goods are
________ incorporated in CPI calculations.
A)
smaller; quickly
B)
greater; immediately
C)
smaller; slowly
D)
negligible; slowly

25)
Recall the application. As new products are constantly invented and introduced
on the market,
A)
the bias in the CPI can be large.
B)
the bias in the CPI tends to become smaller.
C)
the bias in the CPI will eventually disappear.
D)
the bias in the CPI will remain virtually unchanged.

26)
The basket of goods measured in computing the CPI includes goods produced in
prior years and imported goods.

27)
Most economists believe that the CPI overstates the actual changes in prices
while the chain index for GDP understates them.

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