AP Macroeconomics 2.4: CPI Limitations

Explain why the CPI may overstate the true cost of living because of substitution, new goods, and quality changes.

[Maximum number: 1]

． Which of the following statements explains why the consumer price index（CPI）may overestimate the true inflation rate？

A

（A） The CPI includes the prices of the newest products available to consumers．

B

（B） Improvements often result in higher prices on products．

C

（C） Consumers substitute away from more expensive products．

D

（D） The CPI includes prices of only domestically produced products．

E

（E） The CPI includes the prices of imported products．

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MEA-1.G—Define the shortcomings of the CPI as a true measure of inflation question 1