The currently used method for calculating the CPI
A) has no effect on government expenditures.
B) accounts for people increasing consumption of a good that falls in relative price.
C) probably overstates inflation by about 1 percentage point.
D) None of the above answers are correct.

Question

Quizplus · Accepted Answer

The current method for calculating the Consumer Price Index (CPI) is believed to overstate inflation by about 1 percentage point due to factors like substitution bias, where consumers switch to cheaper alternatives when prices rise, which is not fully accounted for in the CPI calculation.

The Currently Used Method for Calculating the CPI