When consumers substitute a cheaper good for a more expensive one, the CPI will ________ the change in the cost of living.
A)equal
B)understate
C)precisely measure
D)overstate

Name: When consumers substitute a cheaper good for a more expensive one, the CPI will ________ the change in the cost of living. A)equal B)understate C)precisely measure D)overstate
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Question

Quizplus · Accepted Answer

The CPI uses a historical market basket of goods so the index will not reflect any substitution that has occurred and, thus, overstates inflation.

When Consumers Substitute a Cheaper Good for a More Expensive