The Federal Reserve policymakers prefer to use a chain-weighted index to report

Question

The Federal Reserve policymakers prefer to use a chain-weighted index to report inflation because:

It dramatically reduces the errors from the overstatement of the fixed weight index and understatement of the deflator.

It makes it difficult for people to figure out the true rate of inflation so policymakers have more time for their policies to have the desired affects.

It corrects for the overstatement of inflation by the GDP deflator.

All of the above.

It dramatically reduces the errors from the overstatement of the fixed weight index and understatement of the deflator.

It makes it difficult for people to figure out the true rate of inflation so policymakers have more time for their policies to have the desired affects.

It corrects for the overstatement of inflation by the GDP deflator.

All of the above.

Explanation / Answer

It corrects for the overstatement of inflation by the GDP deflator. Inflatio measured by chain based index is lower than that measured by other indices.

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