Which of the Following Would Be a Consequence of Substitution

question 12

Multiple Choice

Which of the following would be a consequence of substitution bias in the CPI?

• A)Social Security payments would not adequately compensate retired workers for inflation.
• B)Businesses would overcompensate employees for inflation when giving the cost of living rises.
• C)The inflation rate based on the CPI would underestimate the true level of inflation.
• D)Judges would award child support payments that would not adequately keep up with the true cost of inflation.
• E)Economists make errors in estimating inflation when using substitutes for the CPI such as GDP deflator.

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