In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007 . A hamburger cost $5 in 2006 and $6 in 2007 . Which of the following statements is correct?
a. When 2006 is chosen as the base year, the consumer price index is 90 in 2007.
b. When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007.
c. When 2007 is chosen as the base year, the consumer price index is 100 in 2006.
d. When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.
d
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Suppose there are two policy options facing a vote in the Senate. In the first, government spending will increase $50 billion, while the second option is to cut taxes by $50 billion. A Keynesian economist would argue for
A) the spending option because it has a bigger impact on total spending. The spending directly raises total spending plus it works through the multiplier, while the tax cut only works through the multiplier. B) the tax option because it is easier to pass. The effects on total spending would be identical. C) the spending option because it won't affect the deficit the way the tax cut would. D) the tax option because it also affects the incentives workers face. Long-run aggregate supply will increase with the tax cut, but not with the spending increase.
Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is
a. inelastic and equal to 0.67. b. elastic and equal to 0.67. c. inelastic and equal to 1.50. d. elastic and equal to 1.50.