When Prices Are Rising

Multiple Choice

When prices are rising:

A) the Lespeyres index tends to overstate the increase in the cost of living because of the substitution bias.
B) the Lespeyres index tends to understate the increase in the cost of living because of the substitution bias.
C) the Lespeyres index tends to overstate the increase in the cost of living because of the compensating variation bias.
D) the Lespeyres index tends to understate the increase in the cost of living because of the consumer preference bias.