Suppose That Canada's Official Consumer Price Index (CPI)inflation Rate Contains

Multiple Choice

Suppose that Canada's official consumer price index (CPI) inflation rate contains a measurement error in that it overstates the true cost of living increases of Canadians by 1.5% per year.This would mean that,during a year in which the CPI inflation rate is 1.5%,all senior citizens whose federal pensions are indexed to the CPI inflation rate would experience a ________ in their nominal incomes and a _________ in their real incomes.

A) 3.0% increase;1.5% decrease
B) 1.5% increase;1.5% decrease
C) 1.5% increase;0% increase
D) 1.5% increase;1.5% increase
E) 3.0% increase;3.0% increase