Suppose the CPI does indeed overstate the inflation rate.When the CPI increases by 5% and household incomes increase by 5%, we should conclude that real incomes of households have:
A)increased.
B)stayed constant.
C)decreased.
D)increased more slowly than has inflation.

Question

Quizplus · Accepted Answer

If the CPI overstates inflation, then the actual inflation rate is less than 5%. Therefore, if household incomes increase by 5%, real incomes have increased because the increase in income outpaces the actual inflation rate.

Suppose the CPI Does Indeed Overstate the Inflation Rate