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Why Does the Substitution Bias Cause the Consumer Price Index

question 115

Essay

Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?


Definitions:

Ambiguous

Something that can be understood in more than one way or is unclear due to having multiple interpretations.

Concentrating

The mental process of focusing one's attention or thoughts on a specific object or activity.

High Self-esteem

A positive evaluation of oneself, characterized by feelings of respect, confidence, and worthiness.

Extraverted

Describing a personality trait characterized by outgoingness, sociability, and a high level of engagement with the external world.

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