Because the CPI Is Based on a Fixed Basket of Goods

question 82

Multiple Choice

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. Why is this?

• A)because new goods and services are always of higher quality than existing goods and services
• B)because new goods and services cost less than existing goods and services
• C)because new goods and services cost more than existing goods and services
• D)because when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living

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Definitions:

Anticipate

To expect or predict something based on current knowledge or trends.

Critical Thinking

Aiming to impartially examine and appraise a matter with the intention of making a determination.

Judgmental

Pertains to the tendency of forming opinions or conclusions about people or situations often without full knowledge or consideration of the facts.

Vigilant

Being keenly watchful to detect danger or maintaining careful attention to responsibilities; alertness to potential problems or threats.