Recall Application 4, "The Introduction of Cell Phones and the Bias in the CPI," to answer the following questions:
-According to the application, the failure to include cell phones in the calculation of the CPI creates an upward bias on the telecommunications component of the CPI by 0.8 to 1.9 percent. If the measured inflation for telecommunications was 5%, then the actual inflation was somewhere between:
A) 0.8 to 1.9 percent.
B) 5.8 to 6.9 percent.
C) 5.9 to 6.8 percent
D) 3.1 to 4.2 percent.

Question

Quizplus · Accepted Answer

The actual inflation is the measured inflation minus the bias. So, 5% - 0.8% = 4.2% and 5% - 1.9% = 3.1%. Thus, the actual inflation is between 3.1% and 4.2%.