the cpi understates true inflation because it does not take into account consumers ability to substitute…

the cpi understates true inflation because it does not take into account consumers ability to substitute toward goods that become relatively cheaper over time. select one: true false

the cpi understates true inflation because it does not take into account consumers ability to substitute toward goods that become relatively cheaper over time. select one: true false

Answer

Brief Explanations:

The CPI (Consumer Price Index) actually overstates true inflation due to the substitution bias. Consumers tend to substitute goods that become relatively cheaper, but the CPI assumes a fixed basket of goods. So, it doesn't account for this substitution and overestimates inflation, not understates.

Answer:

False