( 1.) Which of the following is the one of the limitations of the CPI? A. It onl

Question

( 1.) Which of the following is the one of the limitations of the CPI?

A. It only measures the prices of some goods.

B. It does not account for consumer substitution to save money.

C. It measures relative changes in price.

D. There are no limitations to the CPI.

( 2.) Which of the following is LEAST likely to be part of the CPI market basket?

A. Milk

B. Rent

C. Medicine

D. Ponies

( 3.) The CPI rises from 292 to 304. Find the inflation rate.

A. 1.1%

B. 4.1%

C. 9.6%

D. 12%

( 4.) At equilibrium, savings in a closed economy will _______ investment.

A. Be greater than

B. Equal

C. Be less than

( 5.) The supply of loanable funds is determined primarily by

A. Savings.

B. Government spending.

C. Taxes.

D. Investment demand.

Explanation / Answer

Ans:

1) Option B

It does not account for consumer substitution to save money.

The CPI does not consider substitution as a limitation. when prices of goods increases the consumers substitute these goods with less  expensive substitutes. The CPI does not consider this  common consumer practice of substitution.

2) Option C

Medicine

Goods considered in computing CPI include  Food , Beverages , clothes and housing.

3) Option B - 4.1%

Inflation rate = (304 - 292) / 292

= 0.041 or 4.1%

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