Question

Why is the GDP deflator not an accurate measure of inflation as it impacts a household?

a) The GDP deflator considers only government spending.
b) It does not account for changes in consumer prices.
c) Household inflation is not influenced by GDP.
d) The GDP deflator accurately measures household inflation.

Answer 1

The GDP deflator includes prices of items not usually bought by households, making it a less accurate measure of inflation for household expenses than the Consumer Price Index (CPI), which is tailored to household consumption patterns.

Step-by-step explanation:

The GDP deflator is not an accurate measure of inflation as it impacts a household because it includes prices of many goods and services that are not typically purchased by households, such as aircraft and office buildings. Instead, the Consumer Price Index (CPI) is often referred to as the cost-of-living index since it only includes goods and services that households typically purchase, providing a more accurate representation of inflation for household expenses. Furthermore, the Bureau of Labor Statistics highlights that the best measure of inflation varies depending on the intended use of the data.