Question

For an oil-importing country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

Answer 1

ANSWER :-

☆CPI gauges the adjustment in price of a fixed crate of merchandise and ventures bought by a commonplace family, over a period. Since oil and gasoline are bought by family units.

☆It is remembered for the CPI crate and increasing price of oil and gasoline will keep on increasing  the expense of market bin, along these lines increasing  CPI.

☆Then again, GDP deflator is the proportion of ostensible GDP to genuine GDP. Since US is a merchant of oil, the estimation of imported oil and gasoline  is prohibited from calculation of GDP.

☆In this way the adjustment in GDP deflator will be lower. Subsequently, CPI will increasing at a quicker rate contrasted with GDP deflator.

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