Why do economists claim the Consumer Price Index (CPI) tends to overstate the actual rate of inflation?
What will be an ideal response?
The CPI is measured using a fixed-expenditure-weight index. As a result, when the price of a good included in the index increases the assumption is people continue to purchase the same quantity of this item when in reality many consumers (to whatever degree possible) may stop purchasing this item and select a lower priced substitute. This substitution toward a lower-priced good is not reflected in the reported CPI.
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An expansion of the production possibilities frontier is
A) called economic growth. B) proof that scarcity is not a binding constraint. C) a free gift of nature. D) something that has occurred only rarely in history.
Max has allocated $100 toward meats for his barbecue. His budget line and indifference map are shown in the above figure. If Max's current MRS = -0.8, then Max is at point
A) b. B) d. C) e. D) None of above.
A firm practicing group price discrimination across two countries sets MR = common MC and therefore
A) price will be the same in both countries. B) price will be twice MR. C) profit will be the same in both countries. D) price will likely be different in each country.
The ¬_______ is a way to fix exchange rates by defining each participating currency in terms of gold and allowing holders of each participating currency to convert that currency into gold.
A. gold standard B. silver standard C. bronze standard D. none of these