Choose the incorrect statement.
A)The outlet substitution bias injects an upward bias into the CPI.
B)When the quality of a good improves over time and as a result the price rises, the CPI counts the entire price rise as inflation and so overstates inflation.
C)When relative prices change and people substitute to the lower priced good, the CPI ignores the substitution and the CPI overstates inflation.
D)The CPI basket is constantly updated to allow for the introduction of new goods.
E)All of the above statements are incorrect.

Question

Quizplus · Accepted Answer

The CPI basket is not constantly updated; it is updated periodically, which can lead to biases such as not accounting for new goods immediately.

Choose the Incorrect Statement