Question

The chained CPI is ______ than the traditional CPI. The chained CPI is updated ______ in an effort to compensate for the ______ of new products. The traditional CPI has an ______ bias of about 1% per year ______ actual price changes.

A) Higher, infrequently, introduction, upward
B) Lower, infrequently, discontinuation, downward
C) Higher, frequently, discontinuation, upward
D) Lower, frequently, introduction, downward

Answer 1

The correct answer is D) Lower, frequently, introduction, upward, as the chained CPI accounts for the introduction of new products and consumer behavior changes more accurately than the traditional CPI.

Step-by-step explanation:

The chained CPI is lower than the traditional CPI. The chained CPI is updated frequently in an effort to compensate for the introduction of new products. The traditional CPI has an upward bias of about 1% per year overstating actual price changes. Therefore, the correct answer is D) Lower, frequently, introduction, upward. By using alternative mathematical methods for calculating the Consumer Price Index (CPI), accounting for substitutions between goods and incorporating new and improved products more rapidly, the Bureau of Labor Statistics (BLS) attempts to reduce biases such as the substitution bias and quality/new goods bias. However, despite these efforts, adjustments are not perfect and continue to be a topic of debate among economists.