The GDP deflator is not a fixed-quantity price index, but the CPI is. What is the significance of this fact?
A) The GDP deflator does not include enough items in its market basket.
B) A base year cannot be defined for the GDP deflator.
C) The GDP deflator reflects not only changes in prices, but also changes in consumption patterns as consumers substitute between goods.
D) The GDP deflator overstates the true rate of inflation, whereas the CPI understates it.
C
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Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?
A) Booth was a well-known actor; the demand for his letters rose as wealthy actors attempted to buy them. B) Many people are more fascinated by villains and anti-heroes than by heroic figures. C) There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth. D) There is a surplus of letters written by Booth and a shortage of letters written by Lincoln.
If a car salesman is paid a fixed commission when he sells a car, the owner is most likely to see
a. Large margins on sales b. Low margins on sales c. No sales d. None of the above