As Currently Calculated, the CPI Tends to Overstate the True

question 123

Multiple Choice

As currently calculated, the CPI tends to overstate the true inflation rate because

• A) we cannot know what the true inflation rate is.
• B) it fails to correctly measure quality changes for some products.
• C) the market basket selected is inappropriate.
• D) the market basket fails to weigh housing costs sufficiently.

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Definitions:

Budget

An estimate of income and expenditure for a set period of time.

Budget Line Equation

An economic model that represents all combinations of goods and services that a consumer may purchase given current prices within their income level.

Entertainment Budget

An estimate of the money allocated for leisure and entertainment activities within a certain period.

Electronic Matrix

A spreadsheet.