Suppose the Consumer Price Index (CPI)increased by 5 Percent Over

question 2

Multiple Choice

Suppose the Consumer Price Index (CPI) increased by 5 percent over each of the last 5 years while the GDP price index increased by 12 percent annually.Which of the following reasons could explain this difference?

• A) Police unions across the country agreed to substantial salary cuts.
• B) Import good prices increased relative to domestic good prices.
• C) The price of used automobiles increased substantially relative to the prices of other goods.
• D) The price of fighter planes dropped due to increased competition in the aerospace industry.
• E) The price of investment goods purchased by businesses increased substantially relative to the prices of all other goods.

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Definitions:

Tariffs

Taxes imposed on imported or, less commonly, exported goods with the purpose of influencing trade flows, raising government revenue, or protecting domestic industries.

Direct Foreign Investment

Direct Foreign Investment involves an individual or company in one country investing in business interests in another country, typically involving ownership of facilities, properties, or assets.

Chemical Plant

An industrial facility specialized in processing chemicals or chemical compounds to produce a variety of products or raw materials.

World Bank

An international credit institution that extends loans and grants to governmental authorities in needy countries for the objective of completing capital projects.