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Consider the following statements.
1. GDP deflator does not include prices of imported goods
2. CPI does not includes prices of goods consumed by the representative consumers
Which of these statements are not correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements. 1. GDP deflator does not include p...
- CPI (and analogously WPI) may differ from GDP deflator because
1. The goods purchased by consumers do not represent all the goods which are produced in a country. GDP deflator takes into account all such goods and services.
2. CPI includes prices of goods consumed by the representative consumer, hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.
3. The weights are constant in CPI – but they differ according to the production level of each good in GDP deflator.
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Consider the following statements. 1. GDP deflator does not include p...
Explanation:
GDP deflator:
The GDP deflator is a measure of the average price level of goods and services produced in an economy. It is calculated by dividing nominal GDP (the value of all final goods and services produced at current prices) by real GDP (the value of all final goods and services produced at constant prices). The GDP deflator includes the prices of both domestically produced goods and imported goods.
CPI:
The Consumer Price Index (CPI) measures the average price level of goods and services consumed by the representative consumers in an economy. It is calculated by comparing the cost of a basket of goods and services at current prices to the cost of the same basket at base period prices. The CPI includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods.
Statement 1: GDP deflator does not include prices of imported goods
This statement is not correct. The GDP deflator includes the prices of both domestically produced goods and imported goods. It measures the overall price level in an economy, including the prices of goods and services produced both domestically and abroad.
Statement 2: CPI does not include prices of goods consumed by the representative consumers
This statement is also not correct. The CPI measures the average price level of goods and services consumed by the representative consumers. It includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods.
Conclusion:
Both statements are not correct. The GDP deflator includes the prices of both domestically produced goods and imported goods, and the CPI includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods. The correct answer is option 'B'.
GDP deflator:
The GDP deflator is a measure of the average price level of goods and services produced in an economy. It is calculated by dividing nominal GDP (the value of all final goods and services produced at current prices) by real GDP (the value of all final goods and services produced at constant prices). The GDP deflator includes the prices of both domestically produced goods and imported goods.
CPI:
The Consumer Price Index (CPI) measures the average price level of goods and services consumed by the representative consumers in an economy. It is calculated by comparing the cost of a basket of goods and services at current prices to the cost of the same basket at base period prices. The CPI includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods.
Statement 1: GDP deflator does not include prices of imported goods
This statement is not correct. The GDP deflator includes the prices of both domestically produced goods and imported goods. It measures the overall price level in an economy, including the prices of goods and services produced both domestically and abroad.
Statement 2: CPI does not include prices of goods consumed by the representative consumers
This statement is also not correct. The CPI measures the average price level of goods and services consumed by the representative consumers. It includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods.
Conclusion:
Both statements are not correct. The GDP deflator includes the prices of both domestically produced goods and imported goods, and the CPI includes the prices of goods consumed by the representative consumers, which may include both domestically produced goods and imported goods. The correct answer is option 'B'.
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Consider the following statements. 1. GDP deflator does not include prices of imported goods2. CPI does not includes prices of goods consumed by the representative consumersWhich of these statements are not correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?
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