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 CPI for this year is calculated by dividing thecost of a given market basket of goods and services using this year’s prices by thevalue of all goods and services produced in the economy this year using the base year’s prices and multiplying by 100. However, the GDP deflator reflects only the prices of all goods and services produced domestically. Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. Check all that apply.

a. A decrease in the price of a Waterman Industries deep-water reel, which is a commercial fishing product used for deep-sea fishing
b. An increase in the price of a Japanese-made television that is popular among U.S. consumers

Answer 1

GDP deflator

CPI

Step-by-step explanation:

The consumer price index measures the changes in price of a basket of good. It is used to measure inflation. Basket of goods includes goods produced within the country and outside the country.

CPI = (cost of basket of goods in current period / cost of basket of goods in base period) x 100

An increase in the price of a Japanese-made television that is popular among U.S. consumers will increase CPI

GDP deflator = (nominal GDP / real GDP) x 100

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

Nominal GDP is GDP calculated using current year prices while Real GDP is GDP calculated using base year prices. Real GDP has been adjusted for inflation.

A decrease in the price of a Waterman Industries deep-water reel, which is a commercial fishing product used for deep-sea fishing will decrease GDP deflator