Two Types of Bias That Tend to Cause the CPI

question 124

Multiple Choice

Two types of bias that tend to cause the CPI to overstate the "true" rate of inflation are the ________ bias and the ________ bias.

• A)substitution; quality adjustment
• B)price; quantity
• C)aggregation; price
• D)quality adjustment; price adjustment

---

Definitions:

Interest Rate

The segment of a loan applied as interest for the borrower, customarily shown as an annual percentage of the current loan outstanding.

Net Exports

The value of a country's total exports minus the value of its total imports. It is a measure of a nation's foreign trade balance.

Net Capital Outflow

The net flow of funds used for investments in foreign assets by a country minus the flow of investment funds into the country from abroad within a specified timeframe.

Foreign Assets

Investments or ownerships in enterprises, securities, or properties located outside the investor's domestic country.