Question

25. which of the following is the best example of disinflation?

A. when the inflation rate is an extremely high value, e.g. greater than 1000%

B. when the CPI increases over time

C. when the inflation rate is equal to a positive value, e.g. 10%

D. when the inflation rate is equal to a negative value, e.g. -10%

E. when the inflation rate decreases over time, e.g. decreases from 10% to 5% to 1%

26. what role do "quantity weights" play in the construction of a price index?

A. "quantitive weights" allow one to more easily calculate the inflation rate

B. "quanititve weights" show increases in quality over different years

C. "quantitive weights" allow one to hold prices constant between different years

D. "quanititve weights" please varying levels of importance on each good and it's respective price

27. What would most likely cause the CPI to overstate the true impact of consumer inflation?

A. when the base year is moved to an earlier date

B. when consumers substitute from purchasing name brands and buy less expensive generic brands

C. when the quality of consumer goods increase rapidly

D. when the composition of the typical consumer basket changes from year to year

E. none of the above

28. What would most likely cause the CPI to understate the true impact of consumer inflation?

A. when the base year is moved to an earlier date

B. when consumers substitute from purchasing name brands and buy less expensive generic brands

C. when the quality of consumer goods increase rapidly

D. when the composition of the typical consumer basket changes from year to year

E. none of the above

Answer 1

25 Option E

Disinflation is a decrease in the rate of inflation. It refers to slowdownin the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation.

26 Option D

An index number becomes a weighted index when the relative importance of items is taken care of. Here weights are quantity weights. To construct a weighted aggregative index, a well-specified basket of commodities is taken and its worth each year is calculated.

27.Option B

The substitution bias is a weakness in the Consumer Price Index that overstates inflation because it does not account for the substitution effect, when consumers choose to substitute one good for another after its price becomes cheaper than the good they normally buy.

28 Option E

The market basket remains fixed even while consumers may choose to substitute when the price of one item increases. This will understate CPI. Thee improved quality if met with higher​ prices, the CPI would understate the true value of inflation until the measure was updated.