Which of the following statements is false?
A) One problem with any fixed-bundle index as a measure of the cost of living is that it does not account for substitutions that consumers might make in response to price changes.
B) The producer price index is considered to be a leading indicator of future inflation rates.
C) The best overall indicator of inflationary pressures in the economy is the GDP deflator.
D) The consumer price index somewhat understates changes in the cost of living.

Question

Quizplus · Accepted Answer

The consumer price index (CPI) is often criticized for overstating changes in the cost of living, not understating them. This is because CPI does not fully account for consumer substitution between goods when relative prices change, among other reasons.

Which of the Following Statements Is False