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:

Suspended Solids

Particles that are not dissolved in liquid, floating or suspended in water or another liquid.

Physical Process

Natural phenomena or mechanisms that involve the physics of matter and can affect the environment and ecosystem.

Oxygen-demanding Wastes

Organic wastes that reduce the amount of dissolved oxygen in water, often resulting from industrial or agricultural processes.

Activated Sludge

A process in wastewater treatment involving aerated microbial cultures that digest organic matter, reducing pollution before discharge into natural water bodies.