Suppose that the cpi includes two goods rice and bread, Ask an Expert

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Suppose that the CPI includes two goods, rice and bread which are substitutes. If the year after the base year the price of bread rises relative to the price of rice then

1. The weight the CPI places on rice will be lower than actual expenditures indicate, so the inflation rate will be overstated.

2. The weight the CPI places on rice will be higher than actual expenditures indicate, so the inflation rate will be overstated.

3. The weight the CPI places on rice will be lower than actual expenditures indicate, so the inflation rate will be understated.

4. The weight the CPI places on rice will be higher than actual expenditures indicate, so the inflation rate will be understated.

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M91240301

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