Both the CPI and the chain index for GDP overstate actual changes in cost of living due to:
A) the income effect.
B) the difficulty of keeping track of the price of imports.
C) the difficulty of measuring quality improvements.
D) the difficulty of keeping track of changing consumer preferences.

Question

Quizplus · Accepted Answer

Both CPI and chain index for GDP face difficulty in measuring quality improvements accurately, which can result in overstating actual changes in cost of living. The difficulty in measuring changes in quality can result in prices staying constant while the quality of the product improves. This can lead to both indices not reflecting an increase in the standard of living, thereby overstating the cost of living.

Both the CPI and the Chain Index for GDP Overstate