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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Given the federal budget deficit in recent years, some economists have argued mat by adjusting Social Security payments for inflation using me CPI, Social Security is warming recipients. What is their argument, and do you agree or disagree with it?

To determine

Whether Social Security CPI was adjusted to inflation which resulted in overpaying the recipients

Explanation

Here in the question, the argument is whether the social security act is responsible for higher benefits to the senior citizens. To some extent this is true, the social security provided by the government is overpaid as CPI ignores the consumer’s tendency to substitute to cheaper goods (substitution bias) and the newly launched products in the market (new product bias).

Hence, a rise in CPI is more than the cost of living. Above all, CPI is unbiased and will give you a higher value than the actual rise in the cost of living...

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