Which of the following statements about price indexes and the cost of living is correct?
A) As long as the overstatement of actual price increases remains below the unemployment rate this measurement bias is mostly irrelevant.
B) If the overstatement of actual price increases continues, the Social Security system is likely to go bankrupt within the next five years.
C) A one percent overstatement of actual price increases has a multi- billion impact in Social Security budgets.
D) Because the overstatement of actual price increases is always smaller than the growth rate of real GDP this measurement bias is mostly irrelevant.

Question

Quizplus · Accepted Answer

A one percent overstatement of actual price increases can have a significant impact on the Social Security budget because it is adjusted for inflation using price indexes. If the indexes overstate inflation, Social Security benefits will increase more than necessary, leading to higher costs for the government. This can have a multi-billion dollar impact on the budget over time. Therefore, the overstatement of actual price increases cannot be considered mostly irrelevant. The other options are incorrect as they do not accurately reflect the relationship between price indexes, cost of living, and their impact on the Social Security system.

Which of the Following Statements About Price Indexes and the Cost