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______.
Which does an increase in the price of a Chinese-made car that is popular among U.S. consumers show up in?A) GDP DeflatorB) CPIWhich does a decrease in the price of a Treewood Equipment feller buncher, which is a commercial forestry machine that cuts and stacks trees show up in?A) GDP DeflatorB) CPI

Answer 1

Answer:

1. The GDP deflator for this year is calculated by dividing the value of all goods and services produced in the economy this year using this year's prices by the value of all goods and services produced in the economy this year using the base year's prices and multiplying by 100.

This is why the formula for the GDP deflator is = GDP by year n prices/ GDP by base year prices.

2. However, the CPI reflects only the prices of all goods and services bought by consumers.

3. Which does an increase in the price of a Chinese-made car that is popular among U.S. consumers show up in? - B) CPI

The Chinese-made car is not made in the US and is included in the basket of goods consumers buy which is used to calculate calculate CPI.

4. Which does a decrease in the price of a Treewood Equipment feller buncher, which is a commercial forestry machine that cuts and stacks trees show up in? - A) GDP Deflator

This is not part of the goods in the basket and it is assumed to be made domestically so it is part of the GDP Deflator.