Which of the following describes the accuracy of the Consumer Price Index (CPI)?
A)Changes in the CPI accurately reflect the true rate of inflation.
B)Changes in the CPI understate the true rate of inflation.
C)Changes in the CPI overstate the true rate of inflation.
D)Changes in the CPI are unrelated to the true rate of inflation.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) often overstates the true rate of inflation due to factors such as not fully accounting for the substitution effect (where consumers switch to less expensive alternatives as prices change), the introduction of new products, and quality improvements that can make the CPI a less accurate measure of the cost of living changes over time.

Which of the Following Describes the Accuracy of the Consumer