Choose the incorrect statement.
A)When the quality of a good improves over time and as a result the price rises, the CPI counts the entire price rise as inflation and so overstates inflation.
B)The outlet substitution bias injects an upward bias into the CPI.
C)When relative prices change and people substitute to the lower priced good, the CPI ignores the substitution and the CPI overstates inflation.
D)The CPI basket is updated monthly to allow for the introduction of new goods.
E)All of the above statements are incorrect.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) basket is not updated monthly; it is typically updated less frequently, such as every few years, to reflect changes in consumer purchasing habits and the introduction of new goods. This allows for the measurement of price changes over time for a fixed basket of goods and services.

Choose the Incorrect Statement