ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The CPI does not take into account changes of product quality over time.
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The CPI does not take into account changes in consumption patterns.
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The CPI does not allow for reliable inflation rate comparisons between countries.
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The CPI does not measure changes in real GDP over time
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Detailed explanation-1: -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-2: -However, one limitation of the CPI is that the consumer goods it considers do not represent all production or consumption in the economy. Therefore, as a basic economic barometer, the CPI is inherently flawed. Currently, the basket of goods includes basic food and beverages such as cereal, milk, and coffee.
Detailed explanation-3: -The CPI is a statistic for identifying periods of inflation or deflation. It does not include things like savings and investments, and can often exclude spending by foreign visitors.
Detailed explanation-4: -Answer and Explanation: The correct answer is A. CPI includes products that are widely used, while the GDP price index includes all goods and services. The CPI does not include all the goods and services.