How costly are biases in the CPI?
What will be an ideal response?
Each year the federal government increases Social Security payments to the elderly by the rate of increase of prices as measured by the CPI. Economists believe that the CPI overstates actual price increases by between 0.5% and 1.5% a year. If we assume that the figure is 1%, and use the estimates provided by the Congressional Budget Office, reducing Social Security payments by 1% would save 42 billion dollars over a five-year period!
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An increase in total revenue will result if
A) demand is inelastic and price decreases. B) demand is elastic and price decreases. C) demand is elastic and price increases. D) demand is unitary elastic and price increases.
What is the function of risk premium?
A. To compensate bondholders for the chance the borrower will not repay the loan. B. To raise the return to holding government bonds. C. To make sure that the value of the bond rises with inflation. D. To distinguish short from long-term bonds.