Question

Compare CPI and GDP deflate. ( I want the answer computer typing NOT handwriting)

Answer 1

Answer : The comparisons between CPI and GDP deflator are following :

(i) CPI measure only those goods and service prices which are consumer buys .

On the other hand, GDP deflator measures only those goods and service prices which are domestically produced.

(ii) In CPI measure, the price is variable.

Whereas, in GDP deflator the quantity is variable .

(iii) CPI includes quantity levels of base year.

Whereas, GDP deflator includes price levels of base year.

(iv) The formula of CPI is

CPI = [ ( Base year quantity × Current year price ) / (Base year quantity × Base year price ) ] × 100.

On the other hand, the formula of GDP deflator is

GDP deflator = [ GDP which is nominal / GDP which is real ] ×100.