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10. a. The GDP price index (also called the GDP deflator) is another type of price...

10.

a. The GDP price index (also called the GDP deflator) is another type of price index. How does it differ from the CPI?

b. If the CPI increased form 107.8 in 1985 to 183.9 in 2003, by what percent did the average of all prices increase over this time period?

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Answer #1

A) GDP Deflator measures the price of all the goods and services produced within the country.

Now it is important to note that there is a difference between consumer price index and GDP deflator

CPI measures the price of all goods and services purchased by consumers.

Another difference is, GDP deflator measures the price of all the goods and services produced domestically whereas CPI measures any goods and services bought by consumers that means it can be imported goods too.

B) Change in Average Prices

Change in Average Prices = Current CPI - Base CPI / Base CPI x 100

Change in Average Prices = 183.9 - 107.8 / 107.8 x 100

Change in Average Prices = 76.1 / 107.8 x 100

Change in Average Prices = 70.59%

Hence there is an increase in average prices by 70.59%

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