The currently used method for calculating the CPI
A) accounts for people increasing consumption of a good that falls in relative price.
B) probably overstates inflation by about 1 percentage point.
C) has no effect on government expenditures.
D) None of the above answers are correct.

Question

Quizplus · Accepted Answer

The current CPI method, which uses fixed weights to calculate the average price change of a basket of goods, probably overestimates price changes because it does not account for consumers' ability to switch to cheaper alternatives as prices rise, resulting in a bias towards higher inflation.

The Currently Used Method for Calculating the CPI