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.In Australia it is estimated the CPI overstates inflation by 1.1 percentage points a year.
iii.The RBA estimates that substitution bias is about 0.5 percentage points.

Question

Quizplus · Accepted Answer

Statement i is false, as there are several biases in the CPI, including the substitution bias, the new goods bias, the quality bias, and the outlet bias.
Statement ii is true, as studies have shown that the CPI overstates inflation in Australia by about 1.1 percentage points a year.
Statement iii is also true, as the RBA estimates that the substitution bias in the CPI is about 0.5 percentage points.

Which of the Following Statements About the CPI Is/are Correct