Homework Answers
Answer:- option b
Reason:- Both the GDP deflator and CPI would rise.
GDP DEFLATOR = ( nominal GDP ÷ Real GDP) × 100
Here, we can see that nominal GDP is the numerator. Hence, when the
current price of the product rises, then nominal GDP increases
because this is calculated of current year prices. But real GDP
won't rise because it is calculated on base year prices. This
increase in the numerator clearly indicates the rise in GDP
deflator.
CPI = (cost of basket of goods I'm current year ÷ cost of basket
in base year) × 100
So increase in the price of goods will.increase the cost of basket
of present year and not base year. Hence, numerator increases.
Hence, CPI increases.
Hence, this indicated that both GDP deflator and CPI rises.
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