Question

An increase in the price of imported coffee shows up a. in neither the consumer price index nor in the GDP deflator. b. in the consumer price index, but not in the GDP deflator. c. in the GDP deflator, but not in the consumer price index. d. in the consumer price index and in the GDP deflator.

Answer 1

b. in the consumer price index, but not in the GDP deflator.

Step-by-step explanation:

CPI (Consumer price index) is a measure of the overall cost of the goods and services bought by a typical consumer.

GDP (gross domestic product) is the market value of all final goods and services produced within a country in a given period of time.

A GDP Deflator is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100. Basically, it determines the price changes of all goods and services produced within a country.

Since the price of imported coffee increases the CPI INCREASES because imported coffee is being bought by a typical consumer. But the GDP DEFLATOR WILL NOT CHANGE because imported coffee is not produced within the country.

Answer 2

Answer: Option (c) is correct.

Step-by-step explanation:

If there is an increase in the price of imported coffee, this effect will be shows up in the GDP deflator but not in the consumer price index.

The net exports is a component of GDP, so there will be a decrease in imports of coffee. As it will become more expensive for the consumers who imported these goods.