Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?

Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 15RQ: Why does the quality/new goods bias arise if we calculate the inflation rate based on a fixed basket...

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Imagine that the government statisticians who calculate the inflation rate have
been updating the basic basket of goods once every 10 years, but now they decide to update it
every five years. How will this change affect the amount of substitution bias and quality/new
goods bias?

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