Suppose the Price of Gasoline Increases Rapidly and Consumers Respond

question 345

Multiple Choice

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

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

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Definitions:

Corporate Welfare

Financial assistance, incentives, and benefits provided by the government to corporations and businesses, often with the intention of promoting economic growth or achieving certain policy objectives.

Resource Depletion

The exhaustion of raw materials within a region or environment as a result of human consumption and use.

Sustainability

Economic development that aims to reconcile global economic growth with environmental protection.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, typically measured by GDP.