Why Does the Substitution Bias Cause the Consumer Price Index

question 115

Essay

Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?

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Definitions:

Automatic Modes

Processes in the brain that occur without conscious thought, often as habitual responses or reactions to certain stimuli.

Conserve Effort

The tendency to reduce the amount of mental or physical energy expended on tasks, often by relying on heuristics or shortcuts.

Stroop Test

A standard measure of effortful control over responses, requiring participants to identify the color of a word (which may name a different color).

Automatic Thinking

Involves thoughts that occur spontaneously, often subconsciously, and without deliberate control, frequently shaping our emotions and behaviors without our active awareness.