Author Question: A fall in autonomous investment will shift the a. IS curve to the right toward higher interest ... (Read 119 times)

renzo156 · **on:** Jun 30, 2018

A fall in autonomous investment will shift the

a. IS curve to the right toward higher interest rates and output.
b. LM curve to the right towards lower interest rates and higher output.
c. IS curve to the left towards higher interest rates and output.
d. None of the above

Question 2

Discuss four problems with the CPI. Does the CPI tend to overestimate or underestimate the true inflation rate? How big is this bias?

What will be an ideal response?

soda0602 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

The CPI tends to overestimate the true inflation rate because it ignores the substitution of cheaper goods for more costly goods, because it ignores unmeasured changes in quality that also lead to increases in price, and because it ignores new products that are often cheaper than existing products. Economists have predicted that the positive bias may be as large as 1.1 a year.