Quizzol

QUESTION:

Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price index (CPI) and the GDP deflator.

The GDP deflator for this year is calculated by dividing the using by the using and multiplying by 100. However, the CPI reflects only the prices of all goods and services .

Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. Check all that apply.

Scenario	Shows up in the...
Scenario	GDP Deflator	CPI
A decrease in the price of a Rivertown Ltd. depths dredger, which is a commercial mining product used for underwater mineral extraction, made in the U.S., but not bought by U.S. consumers
An increase in the price of a Scandinavian-made coffee maker that is popular among U.S. consumers

ANSWER:

The GDP deflator for this year is calculated by dividing thevalue of all goods and services produced in the economy this year Correct

using this year’s prices Correct

by thevalue of all goods and services produced in the economy this year Correct

using the base year’s prices Correct

and multiplying by 100. However, the CPI reflects only the prices of all goods and servicesbought by consumers Correct

Points:

1 / 1

Any price index compares the amount something would cost in a given year to the amount it would cost in the base year, a benchmark year that serves as a basis for comparison for prices in other years. In the case of the GDP deflator, the something being compared is the value of all goods and services produced in the economy this year:

GDP deflator

=

\frac{(Value of all goods and services produced in the economy this year using this year's prices) \times 100}{Value of all goods and services produced in the economy this year using the base year's prices}

However, the CPI measures the overall cost of goods and services purchased by a typical consumer. There are many types of domestically produced goods, such as tanks and commercial jets, that are not purchased by the typical consumer. There are also many foreign goods and services, such as foreign cars and clothing, that are purchased by domestic consumers. To accurately measure consumer prices, the government must filter out many types of domestically made products and include many types of foreign-made products.

Posted by Cleveland on September 9, 2024