Question

300 is the most widely used price index and is from a basket which contains produced in the econom a. The CPI; all goods and services b. The CPI; selected goods and services c. The GDP deflator all goods and services d. The GDP deflator, selected goods and services GDP is most likely to be a. There is insufficient information to derive an answer. b. smaller than c. greater than d. equal to the true increase in output.

Answer 1

30) Option B - The CPI; selected Goods and Services

The CPI is the most widely used price index and is from a basket which contains selected goods and services produced in the economy.

Explanation: The CPI is calculated since 1913 measuring the changes in the price of the selected basket goods and services where it the commonly used economic indicator to measure the cost of living and purchasing power. The goods and services are measured into the common basket like Food, clothing, Medical, Education, Infrastructure, etc. but does not include the investments and rural farm families. It gives an idea about inflation and the effectiveness of the government policy as the price of the commodity and services changes.

31) Option C - greater than

Suppose we increase dining out and reduce the number of home prepared meals. In this case, the increase in GDP is most likely to be greater than the true increase in output.

Explanation: The dining services does increase the GDP as the output increases with more people dine out and which also increases the employment rate due to additional workers employed in the restaurants and the consumption of inputs also increases but in the previous where all the meal is prepared at home the GDP omits the entire value added by members of a household who do household work themselves. As those do not seek work in the formal market. The participation rate is not calculated before who worked in the household. The one who worked in the household are then employed as additional workers at restaurants as the home prepared meal is not consumed anymore. The exact increase in the GDP can be misleading.