As inflation drives up prices, people attempt to find substitutes ...

[deesands]

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to:
 a. overstate the impact of higher prices on consumers.
  b. consistently underestimate the true inflation rate.
  c. omit the benefits of product quality improvements.
  d. have larger fluctuations than other price indexes.

Question 2

If the marginal propensity to consume (MPC) is 0.90, the value of the spending multiplier is 90.
 a. True
  b. False
  Indicate whether the statement is true or false

[trampas]

Answer to Question 1

a

Answer to Question 2

False