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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Describe the three problems that make the CPI an imperfect measure of the cost of living.

To determine

Reason whyCPI is an imperfect measure of the cost of living.

Explanation

The CPI is an imperfect measure of the cost of living for three reasons. They are as follows:

  1. (1) Substitution bias: It does not take into account consumers' ability to substitute toward goods that become relatively cheaper over time...

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