QUESTION: 1409

The consumer price index (CPI) is calculated

using a fixed basket of goods and will tend to understate inflation.
using a constantly changing basket of goods and will tend to understate inflation.
using a constantly changing basket of goods and will tend to overstate inflation.
using a fixed basket of goods and will tend to overstate inflation.

Answer(s): D

Explanation:

The consumer price index is calculated using a market basket based on the Consumer Expenditure Survey of urban consumers. There are 364 items in the market basket. The CPI compares the price of the fixed market basket in the base year with the price of the fixed market basket in the current year to determine how prices have changed over time.

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QUESTION: 1410

Which of the following will most likely result in an increase in the per capita GDP of a country?

an increase in population
improvement in the average skill level of the labor force
an increase in youthful workers as a proportion of the labor force
an increase in the number of retired workers
an increase in the GDP deflator

Answer(s): B

Explanation:

Education, training and skill enhancing experience can improve the quality of the labor force and expand the supply of human resources. Such a change causes the potential output of the country to increase so that it is possible to produce and sustain a larger rate of output (in nominal and per capita terms).

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QUESTION: 1411

In a situation where information is costly to acquire and individuals must spend time searching for jobs, which type of unemployment will result?

structural
seasonal
frictional
cyclical

Answer(s): C

Explanation:

Frictional unemployment is due to constant changes in the economy that prevent qualified unemployed workers from being immediately matched up with existing job opening. It results from the scarcity of information and the search activities of both employers and employees for information that will help them make better employment choices.

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QUESTION: 1412

Which of the following would be considered non-activist monetary policy?

The government allows tax revenues to rise and fall with the business cycle, while keeping spending constant.
The Central Bank acts to smooth the business cycle.
The Central Bank attempts to keep inflation at a minimum, ignoring unemployment.
The Central Bank prints new currency each year in order to increase the money supply by 3%.
The Central Bank targets short-term interest rates.

Answer(s): D

Explanation:

An activist monetary policy involves a changing policy in reaction to economic events. A classic example of non-activist policy would be one that increases the money supply by a certain amount each year.

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QUESTION: 1409

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QUESTION: 1412

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