Final answer:
Scenario (A) affects the CPI because it pertains to imports consumed by U.S. consumers. Scenario (B) affects the GDP deflator because it involves domestically produced goods. The GDP deflator is more appropriate for converting from nominal to real in government policy situations, affecting the entire economy.
Step-by-step explanation:
Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. Check all that apply. Scenario Shows up in the _____ GDP Deflator CPI:
- (A) An increase in the price of a Chinese-made car that is popular among U.S. consumers only affects the CPI because the CPI includes imports that are consumed by individuals in the U.S.
- (B) A decrease in the price of a Waterman Industries deep-water reel, a commercial fishing product used for deep-sea fishing, made in the U.S., but not bought by U.S. consumers, affects the GDP deflator because it is a good produced domestically and used in calculating GDP regardless of where it is purchased.
A situation where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI could be in government policy situations, such as setting economic policies that impact the entire economy rather than just the consumer sector. The GDP deflator reflects the prices of all domestically produced goods and services, while the CPI is limited to consumer goods and services purchased by urban consumers.