Suppose Medical Care Makes Up 5 Percent of the CPI

Multiple Choice

Suppose medical care makes up 5 percent of the CPI index, and that prices rise in the medical care area faster than in the rest of the economy. An elderly couple spends 15 percent of their income on medical care. For this couple, the CPI

A) understates the inflation rate because of the importance of medical care for this family.
B) overstates the inflation rate because this family is not typical of the country as a whole.
C) understates the inflation rate because the CPI always understates inflation.
D) is a good measure of inflation since the bias inherent in the CPI is offset by the increased emphasis on health care for this family.