The consumer price index overestimates inflation be- cause it (A) compares prices of what consumers actually buy rather than the prices of a fixed basket of goods. (B) requires consumers to adjust along a given indif- ference curve in both the initial and the current period. (C) measures the cost of a market basket in the cur- rent year that has too many units of the items whose prices have increased most. (D) uses the current year's market basket as the base rather than the initial year's basket. (E) None of the above. In the 2019 Statistics Canada's Survey of House- hold Spending, Canadian households spent the high- est share of their incomes on

(A) food. (B) transportation. (C) clothing and footwear. (D) recreation and education. (E) shelter. Using data from 2019 and 2020, the market analyst of a cruise ship company finds that the own price elasticity of demand for cruise ship tours is = 0.2. We can conclude that (A) the demand is inelastic. (B) cruise ship tour is a luxury product. (C) the demand curve has shifted. (D) the Engel curve is positively sloped. (E) for 1% increase in price, the quantity demanded increases by 0.2%. Present value is used to (A) put today's benefits in terms of tomorrow's ben- efits. (B) put today's costs in terms of yesterday's costs. (C) compare present benefits with present costs. (D) adjust future costs and benefits so they can be compared with costs and benefits realized today. (E) do all of the above. The horizontal intercept of the intertemporal budget constraint is referred to as (A) the present value of lifetime income. (B) the current value of future income. (C) the future value of lifetime income. (D) the lifetime income of current consumption. (E) None of the above. An increase in the the interest rate will (A) make a borrower to borrow more. (B) make a saver to save more. (C) make a borrower to start saving. (D) make a saver to switch to borrowing. (E) make the situation unclear as there are income and substitution effects. Your instructor changes the marking scheme after the final exam. This an example of (A) costly to fake principle. (B) adverse selection. (C) statistical discrimination.

D) moral hazard. (E) full-disclosure principle. Which of the following is not an example of adverse selection? (A) People who are in poor health taking out life insurance. (B) The qualities of cars on the used car market are worse than those not on the market. (C) Participants in dating services can be less worth meeting than others. (D) Home owners living on flood plains taking out full house insurance. (E) Couples change their behaviours after marriages. The general message of the full disclosure principle is that (A) lack of evidence that something resides in a favoured category suggests that it belongs to a less favoured one. (B) information is costly to fake. (C) producers should offer lifetime warranties for low quality products. (D) information is symmetric. (E) all of the above are true.