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 1) ________ (A) Value of all goods and services produced in the economy in the base year (B) Value of all goods and services produced in the economy this year (C) cost of a given market basket of goods and services using 2) ______ (A) the base year's prices (B) this year's prices by the 3) ________ A) Value of all goods and services produced in the economy in the base year (B) Value of all goods and services produced in the economy this year (C) cost of a given market basket of goods and services using 4) ______ (A) the base year's prices (B) this year's prices

the CPI reflects only the prices of all goods and services 5) _______ (A) produced domestically (B)bought by consumers

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

(a) GDP Deflator

(b) CPI

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

(b) CPI

Answer 1

Answer:

1) The GDP deflator for this year is calculated by dividing the - (B) Value of all goods and services produced in the economy this year - using - (B) this year's prices - by the - A) Value of all goods and services produced in the economy in the base year - using - (A) the base year's prices

To calculate the GDP deflator, we divide the nominal GDP for the selected year, by the Real GDP of the base year, and we multiply the result by one hundred.

2) The CPI reflects only the prices of all goods and services - (B)bought by consumers

The CPI is a measure of the change in price of a selected basket of goods and services, usually those goods and services that consumers buy the most, whether they are produced domestically or not.

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

As explained above, the CPI measures the price of goods and services that are commonly bought by consumers. It does not matter if the good is produced in the U.S. or China.

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

It shows up in the GDP Deflator because the good is not a common good purchased by consumers. It is a good only consumed by those involved in the tree cutting business.