9.10: Review Questions
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How do economists use a basket of goods and services to measure the price level?
Why do economists use index numbers to measure the price level rather than dollar value of goods?
What is the difference between the price level and the rate of inflation?
Why does “substitution bias” arise if we calculate the inflation rate based on a fixed basket of goods?
Why does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of goods?
What has been a typical range of inflation in the U.S. economy in the last decade or so?
Over the last century, during what periods was the U.S. inflation rate highest and lowest?
What is deflation?
Identify several parties likely to be helped and hurt by inflation.
What is indexing?
Name several forms of indexing in the private and public sector.
