What are some criticisms of the CPI as a measure of inflation?
The CPI is criticized as a measure of inflation because it may not be representative of all consumers, it can incorrectly adjust for quality changes, and it can ignore the relationship between price changes and the importance of items in the market basket.
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Refer to the figure above. Which of the following statements are true in this case?
A) P1 is the socially optimal price for Good X. B) P2 is the price of Good X in a free market. C) Q2 is the efficient level of output of Good X. D) Q2 is the quantity supplied of Good X in a free market.
For a given increase in price, a greater elasticity of demand will result in a greater a. increase in quantity demanded. b. increase in demand
c. decrease in quantity demanded. d. decrease in demand.
Which concept springs to mind when thinking of the classical model?
a. Inflation. b. Population growth. c. Markets clear. d. The microeconomy. e. Money supply.
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.