Because of the substitution problem, the cpi tends to overstate the true change in the price of the typical basket of consumer g

Question

lidiya [134]

10 months ago

14

Because of the substitution problem, the cpi tends to overstate the true change in the price of the typical basket of consumer g

oods.
a. true
b. false

Business

1 answer:

butalik [34] · Answer 1 · 2024-03-26T11:30:59+03:00

It is true that because of the substitution problem, the CPI tends to overstate the true change in the price of the typical basket of consumer goods.

A consumer price index measures a market basket of goods and services that households have purchased at a weighted average price.
The measured CPI fluctuates to reflect changes in prices over time.

One of the most popular methods for determining inflation and deflation is the CPI.
An essential gauge of an economy's health is inflation. The CPI and other indexes are used by governments and central banks when making economic decisions.
The decision to raise or cut interest rates is crucial among these.

If the CPI increases, it indicates that the average rate of change in price over time has increased. The cost of living and income are eventually changed as a result of this.

Learn more about CPI here:

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