The Substitution Bias in the CPI Arises Because the CPI

question 118

Multiple Choice

The substitution bias in the CPI arises because the CPI:

• A)is based on a fixed basket of goods and services.
• B)does not adequately allow for improvements in products.
• C)measures prices at two different times.
• D)understates the "true" rate of inflation.

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Definitions:

Contrast Error

A cognitive bias in evaluation or judgment where a person or thing is compared to those recently encountered, rather than assessed on individual merit.

Overweighting

Refers to giving too much importance or consideration to a particular factor or piece of information in decision-making processes.

Negative Information

Facts, data, or feedback that is unfavorable or detrimental to one's image, expectations, or objectives.

First-Impression Error

The tendency to form lasting opinions about an individual based on initial perceptions.