Principles of Macroeconomics / Unit 6 MAC 0508 short lesson, about 20 seconds
Why a Fixed Basket Overstates
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The idea
A fixed basket overstates the rise in the cost of living, because buyers substitute away from what gets dearer and new goods enter late.
In practice
When beef gets dearer people buy chicken; the fixed basket keeps buying beef.
Where people slip
Estimates of the remaining overstatement have ranged from about half a point to over one point a year, and have fallen as methods improved.
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