The CPI tends to overstate the true inflation rate because
A)we cannot know what the true inflation rate is.
B)changes in product quality are not taken into account.
C)the market basket actually selected is inappropriate.
D)the market basket fails to weigh housing costs sufficiently.

Question

Quizplus · Accepted Answer

The CPI tends to overstate the true inflation rate because changes in product quality are not taken into account. As technology advances and products become better, their prices may increase. However, the increase in price may be offset by the increase in quality, which is not reflected in the CPI.

The CPI Tends to Overstate the True Inflation Rate Because