Question

Because of the substitution problem, the cpi tends to overstate the true change in the price of the typical basket of consumer goods.
a. true
b. false

Answer 1

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.

What is CPI?

• 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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