1) A drawback of using market values to aggregate the quantities of goods and services produced in an economy is that

(a) GDP increases when not all goods are produced in greater quantities.

(b) not all economically valuable goods and services are bought and sold in markets.

(c) higher-priced items count more.

(d) market prices generally reflect the economic benefit consumers expect to receive from an item.

2) If prices in the current year are higher on average than in the base year, nominal GDP in the current year ________ real GDP in the current year.

(a) could be greater than or less than

(b) is equal to

(c) is less than

(d) is greater than

3) CPI may overstate the increase in the cost of living because of:

(a) substitution bias only.

(b) unmeasured quality improvement only.

(c) substitution bias and/or introduction of new (free) services and/or unmeasured quality improvement.

(d) introduction of new (free) services only.

4) Which of the following is NOT a reason for why prices falling over time might be a bad thing?

(a) Consumers form longer-term deflationary expectations.

(b)The purchasing power of the money consumers hold falls over time, meaning they can buy less with their money.

(c) Consumers are more likely to delay making certain purchases.

(d) Firms might delay plans to expand their production capacity.