Question

Choose the statement that is incorrect.

A.Close to a third of federal government outlays are linked directly to the CPI.
B.The bias in the CPI distorts private contracts.
C.Accumulated over a decade comma a CPI bias of 1 percent a year adds up to almost a trillion dollars of additional expenditures.
D.The bias in the CPI decreases government outlays.

Answer 1

The incorrect statement is that the CPI bias decreases government outlays. In reality, biases in the CPI can lead to overestimating inflation and therefore result in higher government spending over time.The statement that is incorrect is: D.

Step-by-step explanation:

The statement that is incorrect is: D.The bias in the CPI decreases government outlays. The Consumer Price Index (CPI) is often used to adjust various payments, including Social Security, to account for inflation. However, researchers have noted that the CPI may overstate the true rise in the cost of living due to biases like the substitution bias and quality/new goods bias. Over time, these biases can lead to larger than necessary adjustments. A bias of even 0.5% per year adds up over a decade, which can result in significant additional expenditures for the government, contradicting the statement that the bias decreases outlays.