Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 9: Q 15. (page 243)

Why does the “quality/new goods bias” arise if we

calculate the inflation rate based on a fixed basket of goods?

Short Answer

Expert verified

This happens because of various reasons which we discuss.

Step by step solution

01

Step 1. Definition

The quality/new goods bias is defined as the rise in the price of a fixed basket of goods over a period of time that tends to exaggerate the rise in a consumer's real cost of living.

02

Step 2.

The “quality/new goods bias” arises if we calculate the inflation rate based on a fixed basket of goods. This happens because of improvement in existing goods and new arrival of goods, the invention of new goods.

And if something is improved but the price becomes the same then the object is cheaper.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Over the last century, during what periods were the

U.S. inflation rate highest and lowest?

What is the difference between the price level and

the rate of inflation?

Edna is living in a retirement home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 9.5, by what percentage does Edna’s cost of living increase between

time 1 and time 2?

Table 9.4 shows the fruit prices that the typical college student purchased from 2001 to 2004. What is the amount spent each year on the “basket” of fruit with the quantities shown in column 2?

Why is the GDP deflator not an accurate measure of inflation as it impacts a household?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free