Question

to reduce the bias in the consumer price index, the bureau of labor statistics
○ a. updates the market basket every two years, rather than every 10 years.
○ b. incorporates substitutions by consumers when prices of specific products fall rapidly.
○ c. updates the market basket every 10 years, rather than every two years.
○ d. incorporates substitutions by consumers when prices of specific products rise rapidly.

Explanation:

The consumer price index (CPI) can have biases. One source of bias is the substitution bias. When the price of a product rises rapidly, consumers tend to substitute it with a relatively cheaper alternative. By incorporating these substitutions (when prices of specific products rise rapidly), the Bureau of Labor Statistics can reduce the bias in the CPI.
Updating the market basket every two years (not every 10 years) is also a measure to reduce bias (as it better reflects current consumption patterns), but option A is incorrect as the BLS updates the market basket more frequently (not every 10 years). Option B is incorrect as substitutions are incorporated when prices rise (not fall). Option C is incorrect as the market basket is updated more frequently than every 10 years.

Answer:

D. incorporates substitutions by consumers when prices of specific products rise rapidly.