Question

Fill in the blanks:

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.
1. The GDP deflator for this year is calculated by dividing the:
Value of all goods and services produced In the economy in the base year using this years prices by the value of all goods and services produced In the economy this year using ____________ and multiplying by100. However, the CPI reflects only the prices of all goods and services _______________ .

Answer 1

(i) Base year prices

(ii) between two consecutive years

Step-by-step explanation:

formula for GDP deflator is (real GDP)/(nominal GDP) x 100 which is the numerator real GDP where prices are valued at the current year adjusted to inflation or deflation and then the denominator where prices are valued at a base year where prices are valued at a nominal year which are not adjusted to any inflation or deflation.

The CPI ( consumer price index) is calculated by determining the rise or fall in price of a good or goods in two consecutive periods which in turn gives us the increase or decrease in price percentage.