Commodity substitution bias in the CPI refers to the fact that the CPI
A) takes into account the substitution of goods by consumers when relative prices change.
B) takes no account of the substitution of goods by consumers when relative prices change.
C) substitutes quality changes whenever they occur without taking account of the cost of the quality
changes.
D) accounts for improved quality in price rises.
E) substitutes relative prices for absolute prices of goods.
B) takes no account of the substitution of goods by consumers when relative prices change
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The discounted value of a future payment is also referred to as:
A) implicit value. B) explicit value. C) present value. D) temporal value.
Which of the following best explains why a $10 billion increase in transfer payments has a smaller impact on aggregate demand than a $10 billion increase in government purchases?
A) An increase in government purchases can be paid for with a bond issue while transfer payments must be funded by taxes. B) An increase in transfer payments can be paid for by borrowing, but an increase in government purchases must ultimately be funded by tax increases. C) Households save part of an increase in income while the entire increase in government purchases represents additional spending. D) An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does.