Question

Instructions: You need to submit a word document on the Moodle under Unit 2 Exercise. The due date is shown in the Moo dle. Q1: Read the following note and discuss the measurement bias of CPI. Answers that just copy from the note will receive zero.

i don't have link or note but i need the answer of following question

Answer 1

Below are the measurement bias in the CPI calculation-

• Substitution effect- As the cost of particular item in the CPI basket increases individual might substitute away to use cheaper substitute which is not reflected immediately into CPI Hence, CPI gets overstated
• Quality improvement effect- with the technology enhancement quality of the products gets better which increases lifecycle and hence reduces replacement cost which does noy get captured into CPI hence, CPI gets overstated because of this
• New Product effect- This is caused because of the new product being introduced into the market which is not captured into CPI immediately