Mahtab Leghari

Budget: $15

Solved!

The CPI representative basket includes a large amount of apples, since apples are popular among the citizens. The price of apples shoots up dramatically in 2009. Households switch to buying pears instead. Does CPI over or understate the rise in price levels in 2009?

Answer

Tutor Farzad Farzanegan

CPI overstates the rise in prices because it does not account for substitution. ...


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