One improvement of the chained consumer price index (CPI) over the traditional CPI is that:
A) the chained CPI more quickly takes into account new goods.
B) the chained CPI accounts for substitution between goods.
C) the chained CPI is "progressive," whereas the traditional CPI is "regressive."
D) the traditional CPI measures Engle's law but ignores the Paasche effect, which is included in the chained CPI.
E) The chained CPI more easily accounts for deflation.

Question

Quizplus · Accepted Answer

The chained CPI more quickly takes into account new goods because it uses a weighted average of the prices of goods in the current period and the previous period. This means that new goods are included in the index more quickly than in the traditional CPI, which uses a fixed basket of goods.

One Improvement of the Chained Consumer Price Index (CPI) Over