As currently calculated, the CPI tends to overstate the true inflation rate because
A) we cannot know what the true inflation rate is.
B) it fails to correctly measure quality changes for some products.
C) the market basket selected is inappropriate.
D) the market basket fails to weigh housing costs sufficiently.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) may overstate true inflation because it does not always accurately account for quality improvements in products. When the quality of a product increases, its effective price (value for money) may decrease even if the nominal price remains the same or increases. The CPI might not fully adjust for these quality changes, leading to an overestimation of inflation.

As Currently Calculated, the CPI Tends to Overstate the True