A price index like the CPI, which uses a fixed basket of goods from one year to the next, will tend to overstate inflation because
a. producers are likely to change the number of goods they sell from year to year.
b. producers will generally reduce the quality of goods as prices increase over time.
c. consumers will tend to substitute away from goods that become more expensive.
d. consumers will usually reduce their consumption of goods when they become relatively cheaper.
C
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Which of the following is TRUE about exchange rates?
A) They should not be volatile because they will determine the economic climate. B) They are generally more volatile than stock prices. C) They are more volatile than several underlying factors that move them such as money supplies and fiscal variables. D) They should be volatile because to correct price signals they adjust quickly in response to economic news, but they are generally less volatile than stock prices. E) They never overreact to economic news.