Price indexes can overstate inflation because they
A) do not contain the prices of services.
B) do not contain the prices of foreign goods.
C) do not contain the prices of any used goods.
D) omit some quality improvements.

Question

Quizplus · Accepted Answer

Price indexes may not always accurately reflect changes in quality of goods and services, which can lead to an overstatement of inflation. For example, if electronics become more advanced and feature-packed over time for the same price, the price index may not take into account the increased value for consumers, and may therefore overestimate the true increase in prices. This is one way in which price indexes can omit quality improvements.

Price Indexes Can Overstate Inflation Because They