Consider a Small Economy in Which Consumers Buy Only Two

question 165

Multiple Choice

Consider a small economy in which consumers buy only two goods: pies and tarts.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

• A) the percentage change in the price of pies is equal to the percentage change in the price of tarts from year to year.
• B) the number of pies bought by the typical consumer is equal to the number of tarts bought by the typical consumer in each year.
• C) neither the number of pies nor the number of tarts bought by the typical consumer changes from year to year.
• D) neither the price of pies nor the price of tarts changes from year to year.

---

Definitions:

Price Level

A measure of the average prices of goods and services in an economy, indicating the purchasing power of money and the cost of living.

Aggregate Demand-Aggregate Supply Diagram

A graphical representation used in macroeconomics to illustrate the relationship between total demand and total supply in an economy.

Full Employment

An economic situation in which all available labor resources are being used in the most efficient way possible, essentially meaning that unemployment is at the lowest possible level without causing inflation.

Aggregate Supply Curve

A graphical representation that shows the total amount of goods and services that producers in an economy are willing and able to supply at different price levels over a period.