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QUESTION
2nd way to adjust for inflation Does CPI measure true inflation?
2nd way to adjust for inflation Does CPI measure true inflation? Boskin Commission said inflation rate based on CPI overestimates true inflation rate by 1-2% because: Cannot completely adjust for changes in quality of basket of goods&services Quality adjustment bias When quality change is measured it is overestimated CPI is for fixed basket of goods&services- what about new stuff? Substitution bias- what if people want tea instead of coffee b/c tea is cheaper?
