Which of the following statements about the CPI is (are)correct?
I The only significant bias in the CPI is the commodity substitution bias.
Ii. The CPI probably overstates inflation by 1.1 percentage points a year.
Iii. As far as the bias in the CPI is concerned, the new goods bias and the outlet substitution biases are irrelevant.

Question

Quizplus · Accepted Answer

The CPI likely overstates inflation due to several biases, including commodity substitution, new goods, and outlet substitution biases, not just commodity substitution bias. The 1.1 percentage point overstatement is an estimate of the overall bias.

Which of the Following Statements About the CPI Is (Are)correct