The outlet substitution bias is most likely to put ________ and so ________ the inflation rate.

Question

Quizplus · Accepted Answer

The outlet substitution bias is most likely to put an upward bias into the CPI, and so overstate the inflation rate. This is because consumers tend to substitute away from goods that have become more expensive, and towards goods that have become less expensive. This substitution effect is not fully captured by the CPI, which only measures the prices of a fixed basket of goods. As a result, the CPI overstates the true inflation rate.

The Outlet Substitution Bias Is Most Likely to Put ________