Which of the following would be a consequence of substitution bias in the CPI?
A)Social Security payments would not adequately compensate retired workers for inflation.
B)Businesses would overcompensate employees for inflation when giving cost of living raises.
C)The inflation rate based on the CPI would underestimate the true level of inflation.
D)Judges would award child support payments that would not adequately keep up with the true cost of inflation.

Question

Quizplus · Accepted Answer

Substitution bias in the CPI occurs when consumers switch to cheaper alternatives as prices change, but the CPI does not fully account for this behavior. This can lead to an overestimation of the cost of living, causing businesses to overcompensate employees for inflation.

Which of the Following Would Be a Consequence of Substitution