If the Boskin Commission's Conclusion That the CPI ______ the "True

question 29

Multiple Choice

If the Boskin Commission's conclusion that the CPI ______ the "true" inflation rate is correct, then the true improvement in living standards over time has been _____.

• A) understates; overestimated
• B) understates; underestimated
• C) overstates; underestimated
• D) measures; overestimated

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Definitions:

Annual Income

The total amount of income earned over a year from all sources including wages, salaries, bonuses, dividends, and interest.

Nominal Interest Rate

The rate of interest charged on a loan without taking the inflation rate into account.

Real Interest Rate

It represents the rate of interest an investor expects to receive after allowing for inflation, fundamentally indicating the true return on an investment.

Inflation Rate

The annual rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to limit inflation to maintain a healthy economy.