Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

A) The newspaper editorial is correct under all circumstances.
B) The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI.
C) The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
D) The newspaper editorial is incorrect under all circumstances.

Question

Samuel Andrade · Accepted Answer

Final Answer : C, Explanation :  The editorial could be correct if the prices of goods consumed by Social Security recipients change at a different rate than the CPI's market basket. This is because the CPI might not accurately reflect the inflation experienced by Social Security recipients if their consumption patterns differ from those assumed in the CPI's market basket.

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