As Inflation Drives Up Prices, People Attempt to Find Substitutes

question 176

Multiple Choice

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to

• A) overstate the impact of higher prices on consumers.
• B) consistently underestimate the true inflation rate.
• C) omit the benefits of product quality improvements.
• D) have larger fluctuations than other price indexes.

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Definitions:

Population Size

The total number of individuals or items in the group that is being studied in a statistical analysis.

Normal Population

A statistical term referring to a population that follows a normal distribution where a large number of instances are clustered around the mean.

Probability Distribution

This mathematical method determines the chances of various results happening in an experiment.

Sample Mean

The average value of a sample, calculated by summing all observations and dividing by the number of observations.