wing cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (a) By 1990, expensive personal computers became a commo

wing cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (a) By 1990, expensive personal computers became a commo

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Measuring The Cost Of Living

Section: Chapter Questions

Problem 6PA

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Question

4. In each of the following cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses.

(a) By 1990, expensive personal computers became a common expenditure in consumers’ baskets. However, some governments were still calculating the consumer’s basket using a 1975 survey.

(b) Between 2007 and 2015, there were significant improvements in smartphones.

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