Which of the following means that the CPI overstates the actual inflation rate?
A) outlet substitution bias
B) quality change bias
C) new goods bias
D) All of the above cause the CPI to overstate inflation

Question

Quizplus · Accepted Answer

All of the listed biases (outlet substitution bias, quality change bias, and new goods bias) can cause the CPI to overstate inflation. Outlet substitution bias occurs when consumers shift to cheaper alternatives as prices increase, but the CPI does not account for this behavior. Quality change bias occurs when the quality of goods improves but the price remains the same or increases; the CPI interprets this as inflation, although consumers are getting more for their money. New goods bias occurs when new products are introduced at higher prices than what they eventually settle at, possibly leading to an overestimation of inflation.

Which of the Following Means That the CPI Overstates the Actual