Question

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.

Answer 1

Answer:

A) The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

Explanation:

The GDP deflator measures the change in prices of all finished goods and services produced within an economy in a given year.

The CPI, on the other hand, measures the change in the price of a selected basket of goods and services, that corresponds with those that are most often bought by citizens, but is limited anyways in scope.

Therefore, we can safely conclude that the GDP deflator is a more comprehensive measure, even if it's used less frequently than the CPI.