With Respect to the Consumer Price Index,which of the Following

question 25

Multiple Choice

With respect to the consumer price index,which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

• A)rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
• B)falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
• C)remains constant,as does the price of a loaf of bread.
• D)None of the above serves as an example of how the substitution bias arises.

---

Definitions:

Compounding

The process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.

Bank Account

A financial account maintained by a banking institution in which the financial transactions between the bank and a customer are recorded.

Compounded Annually

Interest calculated once per year on the initial principal and the accumulated interest of previous periods.

Savings Account

A savings account is a deposit account held at a financial institution that provides an interest rate to the account holder, offering a safe place to keep money while earning returns.