The Substitution by Consumers of One Good for Another Because

question 45

Multiple Choice

The substitution by consumers of one good for another because of relative price changes is:

• A) not captured by the CPI and causes the CPI to overestimate the cost-of-living changes.
• B) captured by the CPI and causes the CPI to overestimate the cost-of-living changes.
• C) not captured by the CPI and causes the CPI to underestimate the cost-of-living changes.
• D) captured by the CPI and causes the CPI to underestimate the cost-of-living changes.

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Definitions:

Treasury Shares

Shares of stock that were issued and later repurchased by the issuing company, reducing the amount of outstanding stock on the open market.