bubl3078 bubl3078

24-03-2020
Business

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Which of the following is a problem associated with using a "market basket" approach to calculate the CPI? a. Different people have different estimates of future inflation b. New goods and the quality of the goods change over time c. The velocity of money is not constant d. Changing prices result in an inconsistent and/or inaccurate estimate of inflation

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BenitoMarin BenitoMarin

28-03-2020

Answer:

The correct answer is letter "D": Changing prices result in an inconsistent and/or inaccurate estimate of inflation.

Explanation:

The Consumer Price Index or CPI is considered the benchmark inflation guide for the U.S. economy. It uses a basket-of-good approach that aims to compare a consistent base of products from year to year. Focusing on products that are bought and used by consumers daily.

The drawback of the CPI is the gap between the time in which information about those prices are collected and the time the CPI is useful to assess. Typically the prices are obtained monthly or bimonthly against the report of the CPI done each quarter or yearly. As CPI is one of the main measures of inflation, the previously explained could lead to inaccurate estimations of inflation.

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