The limitation of the basic Consumer Price Index (CPI) that you are referring to is best described by the term the substitution effect problem. This term highlights the issue where consumers may change their purchasing habits in response to price changes, which the basic CPI does not account for effectively.
International & Economic Relations Unit Test
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Question
One of the limitations of the basic CPI is that it does not measure inflation well for groups that do not purchase the market basket used to calculate price changes. This limitation of the basic CPI is referred to by which of the following terms?(1 point)
Responses
the index number problem
the index number problem
the core CPI problem
the core CPI problem
the substitution effect problem
the substitution effect problem
the chained CPI problem
the chained CPI problem
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1 answer
1 answer