If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket,then
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) might overstate the true rate of inflation because it does not fully account for consumers substituting cheaper goods for more expensive ones. When prices rise, consumers often buy less of the higher-priced items and more of the lower-priced ones, a behavior not fully captured by the CPI, leading it to potentially overestimate inflation.

If Consumers Purchase Fewer of Those Products That Increase Most