Which of the following describes the accuracy of the Consumer Price Index?
A)Changes in the CPI accurately reflect the true rate of inflation.
B)Changes in the CPI understate the true rate of inflation.
C)Changes in the CPI overstate the true rate of inflation.
D)Changes in the CPI are unrelated to the true rate of inflation.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) often overstates the true rate of inflation due to several biases, such as the substitution bias, where consumers change their purchasing habits when prices change, but the CPI basket may not adjust accordingly. Additionally, the introduction of new products and quality improvements can also lead to an overstatement of inflation as measured by the CPI.

Which of the Following Describes the Accuracy of the Consumer