Suppose the Price of Gasoline Increases Rapidly,and That Consumers Respond

question 139

Multiple Choice

Suppose the price of gasoline increases rapidly,and that consumers respond by buying a smaller quantity of gasoline.The consumer price index

• A)reflects this price increase accurately.
• B)understates the price increase due to the so-called income bias.
• C)overstates the price increase due to the so-called income bias.
• D)overstates the price increase due to the so-called substitution bias.

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Definitions:

Economic Forecasts

Predictions about future economic activity, including trends in GDP, inflation, employment, and sales.

Expected Value

The weighted average of all possible outcomes in a probability distribution, where each outcome is weighted by its probability of occurrence.

Novelty Cups

Cups designed with unique features or unusual designs, often used for promotional or gift purposes.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio.