Consider an economy that only produces and consumes two goods — cars and blankets. Suppose the inflation rate based on the consumer price index is higher during the year than that based on the GDP deflator. Assuming underlying tasted and preferences in the economy stay the same, what can you say about the price movements of cars and blankets during the year?
a. The prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goods for the other since theGDP deflator is calculated based on what is actually purchased, it takes that substitution into account
b. The relative price of cars and blankets must have remained unchanged.
c. The prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goodsfor the other because the consumer price index is a fixed-weight index, it understates the rate of inflation in this situation
d. Regardless of what happened the prices of cars and blankets during the year, the inflation rate is the i consumer price index and GDP deflator should always give the same number. If they are different, someone as calculation error

Question

27-09-2019
Business

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Consider an economy that only produces and consumes two goods — cars and blankets. Suppose the inflation rate based on the consumer price index is higher during the year than that based on the GDP deflator. Assuming underlying tasted and preferences in the economy stay the same, what can you say about the price movements of cars and blankets during the year?
a. The prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goods for the other since theGDP deflator is calculated based on what is actually purchased, it takes that substitution into account
b. The relative price of cars and blankets must have remained unchanged.
c. The prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goodsfor the other because the consumer price index is a fixed-weight index, it understates the rate of inflation in this situation
d. Regardless of what happened the prices of cars and blankets during the year, the inflation rate is the i consumer price index and GDP deflator should always give the same number. If they are different, someone as calculation error

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Аноним Аноним · Answer 1 · 2019-09-28T04:02:16+02:00

Answer:

The correct answer is a. The prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goods for the other since theGDP deflator is calculated based on what is actually purchased, it takes that substitution into account.

Explanation:

The GDP deflator is a price index that calculates the variation in the prices of an economy in a given period using the Gross Domestic Product (GDP). The GDP deflator is used to know the part of the growth of an economy that is due to the price increase.

It is calculated in order to soften the increase in prices in an economy and, therefore, allows to correct estimates of the growth of the economy, since if it is not used, the growth would not be real, since it could be overvalued. Generally, this corrective effect is applied to one of the most important variables to measure economic growth, which is called Gross Domestic Product (GDP), and is defined as the set of goods and services produced in an economy in a given period of Time, usually, one year.