Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5 percent and household incomes increase by 5 percent, we should conclude that real incomes of households have:
A)increased.
B)stayed constant.
C)decreased.
D)increased more slowly than has inflation.

Question

Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5 percent and household incomes increase by 5 percent, we should conclude that real incomes of households have:
A)increased.
B)stayed constant.
C)decreased.
D)increased more slowly than has inflation.

Quizplus · Accepted Answer

If the CPI and household income increased at the same rate, economists would conclude that this household is not experiencing an increase in their real income.

Suppose the CPI Does Indeed Overstate the Inflation Rate