Substitution Bias Occurs Because the CPI Ignores the Possibility of Consumer

question 160

True/False

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

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Definitions:

Net Present Value

The discrepancy between incoming and outgoing cash flows' current worth over a certain timeframe, utilized in long-term investment planning to evaluate an investment's profit potential.

Future Cash Inflows

The expected receipts of cash in the future from investments, operations, or other sources.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Cash Inflow

The total amount of money being transferred into a business, from operations, investments, or financing activities.