PPP-adjustment involves:

• recalculating economic statistics to account for differences in price levels across countries.

• a method very similar to adjusting to cost-of-living increases using a price index like the CPI.

• recalculating a variable like GDP per capita so we can compare someone's standard of living across countries.

• All of these statements are true.

• None of the options

2) Suppose that an earthquake causes significant damage in the downtown area of a large city. What effect will rebuilding efforts have on the market for lumber?

• The demand and supply of lumber will increase, which will increase the equilibrium price of lumber, but the change in the equilibrium quantity is indeterminate.

• The demand for lumber will increase, which will increase both the equilibrium price and quantity.

• The supply of lumber will increase, which will decrease the equilibrium price and increase the equilibrium quantity.

• The demand for lumber will increase, which will decrease both the equilibrium price and quantity.

• The supply of lumber will decrease, which will increase the equilibrium price and decrease the equilibrium quantity.

3) Headline inflation is the rate of inflation as measured by the:

• CPI with food and energy costs omitted from the market basket.

• GDP deflator.

• CPI using the entire market basket.

• CPI with housing and transportation costs omitted from the market basket.

• PPI with energy costs excluded.

4) The price elasticity of demand for a Starbucks latte is 4. If the price of a cup of Starbucks latte increases by 2 percent, the quantity demanded will:

• increase by 4 percent.

• decrease by 4 percent.

• increase by 8 percent.

• decrease by 8 percent.

• decrease by 2 percent.