The CPI is a commonly used and closely watched measure of inflation. However, it has limitations. What are they?
What will be an ideal response?
Economists maintain that the CPI, which is a common measure of inflation, overstates the true rate of inflation by as high as one percentage point per year. This is primarily due to the fact that the CPI is measured using a fixed basket of goods. The bias in the CPI arises from several sources. First, consumers' buying patterns change, and in particular, consumers can substitute away from higher priced goods towards less expensive substitutes. A second source of bias arises from the fact that quality improvements are not always adjusted for, so what looks like a higher price may simply be an improvement in quality.
You might also like to view...
Because market price always tends back to the minimum average total cost for all identical firms in a perfectly competitive market in the long run, in theory:
A. the supply will remain a constant quantity. B. price will be the same at any quantity. C. the supply curve will be upward sloping. D. the supply curve may be downward sloping.
The Federal Reserve System was founded in
To realize it's potential, a nation must have a mechanism that channels capital into _____-____ _____
Fill in the blank(s) with the appropriate word(s).
Which of the following statements is correct about Temporary Assistance to Needy Families (TANF)?
A. Families may not receive benefits for longer than 60 months. B. The Federal program determines eligibility and benefit levels with no discretion left to the state. C. Unwed teenage parents receiving benefits must live in public housing. D. Parents with children under age one must work 20 hours per week to receive benefits.