Suppose that Canada's official consumer price index (CPI)inflation rate contains a measurement error in that it overstates the true cost of living increases of Canadians by 1% per year.This would mean that,during a year in which the CPI inflation rate is 3%,all senior citizens whose federal pensions are indexed to the CPI inflation rate would experience a ________ in their nominal incomes and a _________ in their real incomes.

Question

Quizplus · Accepted Answer

The CPI inflation rate is 3%, but the true cost of living increases are only 2% (3% - 1%). This means that senior citizens whose pensions are indexed to the CPI inflation rate will experience a 3% increase in their nominal incomes, but only a 1% increase in their real incomes (2% - 1%).

Suppose That Canada's Official Consumer Price Index (CPI)inflation Rate Contains