Question

Which of the following is a FALSE statement about the CPI

a. It tends to overstate the cost of living.
b. It includes the prices of a basket of goods thought to be purchased by the typical consumer.
c. It measures the prices of wholesale goods.
d. It does not include the prices of all possible substitute goods and services.

Answer 1

The false statement about the Consumer Price Index (CPI) is that it measures the prices of wholesale goods. The CPI is based on a basket of goods and services for the average consumer, not wholesale goods.

Step-by-step explanation:

The statement that is FALSE about the Consumer Price Index (CPI) is "It measures the prices of wholesale goods." The CPI is a measure based on a fixed basket of goods and services and represents the purchases of the average family of four. It is calculated by government statisticians at the U.S. Bureau of Labor Statistics. Although it includes the prices of a basket of goods thought to be purchased by the typical consumer and tends to overstate the cost of living due to not accounting for substitution of less expensive goods (substitution bias) or improvements in quality and the introduction of new goods (quality/new goods bias), it does not measure wholesale goods; that is the domain of the Producer Price Index (PPI).