Using the CPI to compensate workers for inflation is appropriate becau

Using the CPI to compensate workers for inflation is appropriate because, in the face of a change in relative prices, people should be allowed to purchase the same bundle as they did before the price changes.

Indicate whether the statement is true or false

ANSWER

False. This assumes that people would still prefer the original bundle. Because they are facing a new set of relative prices, compensating people so that they could purchase the original bundle will allow them to be able to achieve a higher level of utility than they did before the price changes.