Question

The measurement problems in the consumer price index (CPI) as an indicator of the cost of living are important because many government programs use the CPI to adjust for changes in the price level.

Select one:

True

False

Suppose that in 2016, the CPI for energy rose from 183.4 to 193.3 while the CPI for all items rose from 236.5 to 241.4. As a result the inflation rate for energy is lower than the overall inflation rate in 2016.

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True

False

For any given year, the CPI is the price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100.

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True

False

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.

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True

False

The consumer price index (CPI) will be more influenced by a 10 percent increase in the price of food and beverages than a 10 percent increase in the price of housing

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True

False

Answer 1

Q : The measurement problems in the consumer price index (CPI) as an indicator of the cost of living are important because many government programs use the CPI to adjust for changes in the price level.

Answer : TRUE

Consumer price index is a very important and inevitable concept in economics. Consumer price index measures the cost of living of a typical consumer. It helps to measure the rate of inflation in an economy. Since it measures the rate of inflation change in price can be understood easily. This helps government in many programs and policy making because inflation is a very important thing which influence the policy making and programs and CPI gives the measure of inflation. By knowing the price change they can adjust the programs and policies in accordance with that. Hence the statement is true.