Discuss four problems with the CPI. Does the CPI tend to overestimate or underestimate the true inflation rate? How big is this bias?
What will be an ideal response?
The CPI tends to overestimate the true inflation rate because it ignores the substitution of cheaper goods for more costly goods, because it ignores unmeasured changes in quality that also lead to increases in price, and because it ignores new products that are often cheaper than existing products. Economists have predicted that the positive bias may be as large as 1.1% a year.
Economics
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Based on the production data for Pat's Pizza Parlor in the above table, which of the following pair of workers have the same average product?
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The U.S. record is superior to that of Europe in ________
A) growth in real productivity. B) real wage growth C) growth in employment D) All of the above
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