1 a) Positive statement is a statement that attempts to describe world as it is. It can be tested by referring to available evidence .Normative statement expresses an opinion about what should be. b) i) positive; ii) positive; iii) normative; iv) normative
2 a) CPI aims to measure price changes. These numbers tell that price level had been increasing at a constant rate during these three years. b) Inflation rate in 2008= (114.6-111.9)/111.9 x 100=2.4 Inflation rate in 2009= (116.2-114.6)/114.6 x 100=1.4 c) Inflation rate decreased in 2009 d) These CPI numbers could be biased because of the new good bias and quality change bias (with the technological progress more and more goods are coming out each year replacing old goods, like cars and computers. These new goods get better and more expensive each year). Another source of bias is the commodity substitution bias (people start to buy cheaper alternatives as prices rise), and outlet substitution bias (people start using discount stores more frequently as prices rise). e) The GDP deflator is the ratio of nominal GDP to real GDP. Because it uses current period and previous period quantities, rather than fixed quantities, it overcomes sources of bias in the CPI. Chained Price Index for Consumption (CPIC) is the ratio of nominal consumption expenditure to real consumption expenditure. Like the GDP deflator it uses quantities in current and previous periods, rather than fixed quantities from an earlier period, it overcomes sources of bias in the CPI.
3 a) investment. It is used to generate revenue. b) consumption. Food is a part of consumption expenditure c) investment. A taxi cab is used to make income. d) consumption. It is a part of recreation consumption expenditure. e) consumption. A vacation in a foreign country is a part of entertainment consumption. 4 a)