Suppose That the CPI Does Indeed Overstate the Rate of Inflation

question 49

Multiple Choice

Suppose that the CPI does indeed overstate the rate of inflation. When the CPI increases by 5% and household incomes increase by 5%, we should conclude that the real incomes of households has:

• A) increased.
• B) stayed constant.
• C) decreased.
• D) increased more slowly than has inflation.

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Definitions:

Commodity Futures Market

A financial exchange where people can trade commodity futures contracts, which are agreements to buy or sell a specified amount of a commodity at a set price at a future date.

Flood Control System

Infrastructure designed to manage or prevent the adverse effects of floods.

Annual Premium

The amount of money that must be paid per year to maintain an insurance policy or similar financial products.

Coastal Town

A settlement located along or near a coast, often characterized by a maritime economy and culture.