The CPI Assumes a Fixed Basket of Goods Over Time

question 191

Essay

The CPI assumes a fixed basket of goods over time. In fact, consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen. What problem does this cause for measuring the cost of living?

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Definitions:

Factor Structure

The way in which the underlying variables or factors are organized and interrelated within a set of observed data.

Constructs

Abstract concepts that are specifically chosen or created to explain behavior in a theoretical framework.

Negatively Worded Items

Negatively worded items are questions or statements in surveys or questionnaires that are phrased in a negative manner, which can affect the responses or interpretations of the data.

Scale

A measurement tool or system that quantifies or categorizes variables, often used in surveys and research.