Which of the Following Is an Example of Substitution Bias

question 30

Multiple Choice

Which of the following is an example of substitution bias in the consumer price index?

• A) Consumers buy more apples and fewer pears when apples rise in price more rapidly than pears.
• B) Consumers buy more apples and fewer pears when pears rise in price more rapidly than apples.
• C) Consumers rely increasingly on government transfer payments during times of high inflation.
• D) The government substitutes consumer support for military support during times of high inflation.

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Definitions:

Present Value

Today's financial valuation of an anticipated future monetary sum or series of transactions, adjusted for a certain rate of return.

Annual Cash Inflow

The total amount of cash received by a company from its operations, investments, and financing activities over the course of a year.

Required Return

The minimum return that investors expect to receive on an investment, considering its risk.

Net Present Value Method

The Net Present Value Method is a financial analysis tool used to evaluate the profitability of an investment by calculating the present value of expected future cash flows minus the initial investment cost.