Question

The CPI tends to A. estimate inflation correctly. B. underestimate the extent of inflation when prices increase rapidly. C. overestimate inflation by excluding the prices of intermediate products. D. overestimate the extent of inflation because it uses fixed weights and ignores substitution of lower priced items for higher priced items.

Answer 1

Answer:

d. overestimate the extent of inflation because it uses fixed weights and ignores substitution of lower priced items for higher priced items

Explanation:

The CPI tends to overestimate the extent of inflation because it uses fixed weights and ignores substitution of lower priced items for higher priced items