The CPI overstates the true inflation rate because it ignores changes in consumers' purchasing patterns as relative prices change.

Question

Quizplus · Accepted Answer

The CPI assumes that consumers continue to purchase the same basket of goods and services despite changes in relative prices, which may not be entirely accurate. This can lead to an overstatement of inflation because it does not reflect how consumers alter their consumption patterns in response to changing prices.

The CPI Overstates the True Inflation Rate Because It Ignores