ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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quality of goods that are produced
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the number of new goods that are produced
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the price changes of goods from one year to the next.
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the substitution effect when prices increase for a good that is fixed in the market basket.
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Detailed explanation-1: -Another limitation is that the CPI cannot be used to measure differences in price levels or living costs between one area and another as it measures only time-to-time changes in each area. A higher index for one area does not necessarily mean that prices are higher there than in another area with a lower index.
Detailed explanation-2: -The correct answer is C. The consumer price index is used to measure the quantity of goods and services that the economy is producing.
Detailed explanation-3: -The consumer price index is an imperfect measure of the cost of living for the following three reasons: substitution bias, the introduction of new goods, and unmeasured changes in quality. Because of measurement problems, the CPI overstates annual inflation by about 1 percentage point.
Detailed explanation-4: -The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.)