Principles of Economics (8)

What is CPI?

• It is an index measuring the average price level of goods and services consumed by residents of large cities

• It is measure of inflation.

• It is a measure of standard of living.

• None of the above three.

Why is inflation a problem?

• Inflation will lead to higher costs on resource

• Inflation will lead to Redistribution problems.

• Inflation will result in uncertainty that will discourage any investment

• All the three above problems of inflation.

Suppose that the price of apples rises sharply compared with the price of oranges. People buy more oranges and fewer apples than they did in the CPI base year. In this situation, the CPI will tend to _____ inflation as a result of _____ bias.

• A. understate; substitution

• B. accurately measure; substitution

• C. overstate; quality adjustment

• D. understate; quality adjustment

• E. overstate; substitution

Which of the following suggests that the economy is experiencing a recession?

• A. a fall in the inflation rate

• B. a rise in private consumption of durable goods

• C. a fall in the unemployment rate D. a rise in interest rates E. none of the above

• D. a rise in interest rates

• E. none of the above

Karen, a software engineer, lost her job when the start-up company she was working for went bankrupt. She interviewed at five companies before accepting a new job in another firm in the same industry. What type of unemployment did Karen have?

• frictional

• seasonal

• structural

• cyclical

Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn’t let him use the skills he had acquired in university, but now he has a job in the area that he trained for. What type of unemployment did Tao experienced?

• frictional

• seasonal

• structural

• cyclical

Lance is an unskilled worker who works for local moving companies during their busy seasons. The rest of the year he is unemployed. What type of unemployment does Lance have?

• frictional

• seasonal

• structural

• cyclical

Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up. What type of unemployment did Alice experienced?

• frictional

• seasonal

• structural

• cyclical

Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year. What type of unemployment did Ted experience?

• frictional

• seasonal

• structural

• cyclical

Which price index measures the average price of things purchased by the typical family?

• a. GDP deflator

• b. producer price index

• c. consumer price index

• d. minimum wage