Question

which of the following biases of the CPI does not incorporate rational economic thinking into its...

which of the following biases of the CPI does not incorporate rational economic thinking into its calculation?

select one:
a. new goods bias
b. quality change bias
c. substitution bias
d. ceteris Paribus bias

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Answer #1

Answer - d. ceteris Paribus bias

Explanation - Consumer price index (CPI) refers to the change in the price paid by the consumers for goods and services. Higher CPI shows inflation while lower CPI shows deflation in the economy.

CPI biases are new good bias, quality change bias, and substitution bias. Therefore we can easily say that ceteris paribus (keeping other factors constant) bias is not incorporated rational economic thinking into CPI calculation. So in this way option d. (ceteris paribus bais) is the correct option.

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