A changing-basket price index (Passche index) like the GDP deflator tends to: a. underestimate the change in the cost of living because it does not take into account that people can substitute less-expensive goods for ones that become more expensive. b. overestimate the change in the cost of living because the continual introduction of new goods makes consumers better off even if prices do not fall. c. underestimate the change in the cost of living because it does not reflect the reduction in consumers’ welfare that may result from the substitutions of less expensive goods for more expensive ones. d. overestimate the change in the cost of living because it takes into account that people can substitute less expensive goods for more expensive ones.
A changing-basket price index (Passche index) like the GDP deflator tends to:
a. underestimate the change in the cost of living because it does not take into account that
people can substitute less-expensive goods for ones that become more expensive.
b. overestimate the change in the cost of living because the continual introduction of new
goods makes consumers better off even if prices do not fall.
c. underestimate the change in the cost of living because it does not reflect the reduction in
consumers’ welfare that may result from the substitutions of less expensive goods for
more expensive ones.
d. overestimate the change in the cost of living because it takes into account that people can
substitute less expensive goods for more expensive ones.
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