Question

Alternative price indexes 

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 the _______  using by the _______  using and _______  multiplying by 100. However, the GDP deflator reflects only the prices of all goods and services  _______.

Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. Check all that apply 

An increase in the price of a Chinese-made car that is popular among U.S. consumers 

A decrease in the price of a Waterman Industries deep-water reel, which is a commercial fishing product used for deep-sea fishing, made in the U.S., but not bought by U.S. consumers.

 

Answer 1

Ans) the answers to the blanks are :

1) value of all goods and services produced in the economy this year

2) this years prices

3) value of all goods and services produced in the economy this year

4) the base years prices

5) bought by consumers.

Answer 2

The CPI of this year is calculated by dividing the cost of a given market basket of goods and services using this year's prices by the cost of a given market basket of goods and services using the base years prices and multiplying by 100. however, the GDP Deflator reflects only the prices of all the goods and services produced domestically

First statement: CPI

Second statement: GDP Deflator

Answer 3

The GDP deflator is calculated by dividing the nominal GDP by the real GDP and multiplying by 100, the nominal GDP is calculated by the current year prices and the Real GDP is calculated by the base year prices. The difference between the CPI and the GDP deflator is that the GDP deflator only includes the good that is produced in the country and it will not include the imports. The CPI is the measure of goods and services that is bought by the consumer while the deflator includes all the products that are produced in the country.

Answer 4

1. The GDP deflator for this year is calculated by dividing thevalue of all goods and services produced in the economy this year    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 CPI reflects only the prices of all goods and servicesbought by consumers   

2. First scenario: GDP

Second scenario: CPI