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(Solved): During the period after the inflation rate began to rapidly increase in the spring of 2021, a num ...



During the period after the inflation rate began to rapidly increase in the spring of​ 2021, a number of news articles noted cases of​ "hidden inflation." This hidden inflation took two​ forms: (1) The quality of some services was​ declining, and​ (2) some packaged goods contained smaller quantities at the same price. The first type of inflation​ involved, for​ example, hotels no longer offering free hot breakfasts or cleaning rooms every day during a​ customer's stay. The second type of hidden inflation​ involved, for​ example, the number of tissues in a small Kleenex box being reduced from 65 to​ 60, although the price was unchanged. This second type of hidden inflation is called shrinkflation. When compiling the​ CPI, the BLS takes shrinkflation into account but not most declines in the quality of services. ​Sources: Dee-Ann​ Durbin, "No,​ You're Not Imagining​ It-Package Sizes Are​ Shrinking," apnews.com, June​ 8, 2022; Annie Gasparro and Gabriel T.​ Rubin, "The Hidden Ways Companies Raise​ Prices," Wall Street Journal​, February​ 12, 2022; Alan​ Cole, "How I Reluctantly Became an Inflation​ Crank," fullstackeconomics.com, September​ 8, 2021; Scott​ McCartney, "The Incredible Disappearing Hotel​ Breakfast-and Other Amenities Travelers​ Miss," Wall Street Journal​, October​ 20, 2021; and Neil​ Irwin, "There Is Shadow Inflation Taking Place All Around​ Us," New York Times​, October​ 14, 2021. a. Is it easier for the BLS to correct for the effects of shrinkflation than for the effects of declining service​ quality, such as less frequent housekeeping services in hotels or less frequent bathroom cleaning in​ restaurants? A. Declining service​ quality, because​ lower-quality goods and services have lower prices than​ higher-quality goods and services. B. ​Shrinkflation, because​ lower-quality goods and services have lower prices than​ higher-quality goods and services. C. ​Shrinkflation, because the price of​ new, smaller products can more easily be observed and quantified than a decline in quality. D. Declining service​ quality, because it is easier to see a decline in service quality without purchasing the​ service; for​ shrinkflation, individuals must purchase the good to see its decline in size or quality.



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