Computing the CPI is important because ________
A) it is a very accurate and error-free measure of the cost of living
B) it helps predict spending patterns for particular goods and services
C) government uses it to index entitlements, such as social security benefits, so that beneficiaries do not lose purchasing power in periods of inflation
D) all of the above
E) none of the above
C
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You have a $500 saving bond. If the nominal interest rate is 10 percent, then the inflation rate must be
A) 10 percent if in real terms you earned $200. B) 10 percent if in real terms you earned $100. C) zero, otherwise you would sell the bond. D) 4 percent if in real terms you earned $30. E) 4 percent if in real terms you earned $70.
The figure above shows the market for education, a good possessing an external benefit. In order to attain the efficient number of students, a government subsidy must equal ________ per student
A) $2,000 B) $8,000 C) $6,000 D) $10,000 E) $16,000