- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 11. Understanding Business Cycles
- Subject 7. Inflation
CFA Practice Question
The substitution bias means the Laspeyres index often shows ______ bias.
B. a downward
C. either a downward or an upward
A. an upward
B. a downward
C. either a downward or an upward
Correct Answer: A
The Laspeyres index overstates the rise in prices, because it does not take account of substitution away from goods as they become more expensive relative to other goods.
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