An Example of the Commodity Substitution Bias in the Calculation

question 12

Multiple Choice

An example of the commodity substitution bias in the calculation of the CPI is a price increase in

• A)a 2012 Toyota Camry versus a 2005 Honda Civic.
• B)a GPS unit versus a AAA map book.
• C)new homes because people's incomes have increased.
• D)etexts versus used books bought through Craigslist.
• E)turkey when the price of chicken doesn't rise.

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Definitions:

Government

A system or group of people governing an organized community, often a state.

Tax System

The legal framework and set of rules governing how taxes are collected and managed by a governing authority.

Incentivize

To provide incentives or motivations to encourage specific behaviors or actions.

Accrual

Accrual is an accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.