Which statement is an objection of using the Consumer Price Index (CPI) to measure changes in the cost of living?
A. The calculated inflation rate is only accurate for an individual who purchases all the goods and services in the basket.
B. The inflation rate is always understated due to substitution bias.
Answer: A. The calculated inflation rate is only accurate for an individual who purchases all the goods and services in the basket.
Reason: The CPI takes into account all the goods and services in the consumer basket and measures inflation based on that information. Thus, the CPI is valid only that the consumer consuming all those goods and services and not anyone who consumes only part of it.
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