Asked by Jordyn Orrison on Jul 21, 2024
Verified
Which of the following is correct?
A) The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B) The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C) The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D) The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
GDP Deflator
A measure of the price level of all domestically produced final goods and services in an economy, used to convert nominal GDP into real GDP.
CPI
By applying a weighted average methodology, the Consumer Price Index tracks the fluctuations in average prices for a comprehensive array of consumer goods and services, such as medical care, food, and transportation services.
- Understand the distinction between the GDP deflator and the Consumer Price Index as measures of inflation.
Verified Answer
MD
Michael DickinsonJul 23, 2024
Final Answer :
B
Explanation :
The CPI (Consumer Price Index) is specifically designed to measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, making it better at reflecting the goods and services bought by consumers compared to the GDP deflator, which reflects the prices of all domestically produced goods and services in an economy.
Learning Objectives
- Understand the distinction between the GDP deflator and the Consumer Price Index as measures of inflation.