Suppose that the Consumer Price Index fell by 4% between this year and last year

Question

Suppose that the Consumer Price Index fell by 4% between this year and last year while the price of a typical automobile fell by 3%. Which of the following is true?                            

A. The nominal price of a car increased.                                

B. The real price of a car increased.                         

C. The real price of a car did not change.                               

E. Both a and b are correct.                         

F. Both a and c are correct.

Which of the following is true?                 

A. Cash accounting is easier to implement in practice than is capital accounting.                                

B. Capital accounting is easier to implement in practice than is cash accounting.                                

C. Spending $1 billion on highways would change the capital account balance but not the cash account balance.                                

D. Both b and c are correct.                       

D. Both a and c are correct

Cash accounting measures the deficit as the __________; capital accounting measures it as the ___________.                               

A. difference between current spending and revenues; difference between current spending and revenues                   

b. difference between current spending and revenues; difference between Republican and Democratic estimates of the deficit                  

c. difference between non-investment spending and revenues; difference between non-investment spending and revenues                            

d. difference between non-investment spending and revenues; difference between current spending and revenues                

e. None of the answers is correct.

Explanation / Answer

Answer: (B)The real price of a car increased

if denominator Real Price increases , Price Index decreases.

Price Index=Nominal Value/Real Value

Answer

A. Cash accounting is easier to implement in practice than is capital accounting. only receipts and payments have to be recorded without adjustments.

Answer D

Cash accounting measures the deficit as the difference between non-investment spending and revenues and

Capital accounting measures it as the difference between current spending and revenues

Price Index=Nominal Value/Real Value

Answer

A. Cash accounting is easier to implement in practice than is capital accounting. only receipts and payments have to be recorded without adjustments.

Answer D

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