Question

American automakers purchase German-made sheet metal presses at an increased price. The increased price will be...

American automakers purchase German-made sheet metal presses at an increased price. The increased price will be reflected in....

a. neither gdp defaltor nor cpi
b. only the gdp deflator
c. cpi only
d. gdp deflator and the cpi (this answer is incorrect)


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Answer #1

Answer: The correct answer is option C i.e. CPI only.

Explanation: This is because firstly GDP deflator is a measure of inflation which only takes into account the final goods and services that are produced within the economy i.e. just the domestic goods and not anything that is imported. On the contrary, CPI includes all the goods which are bought by the consumer irrespective of the fact that they are produced within or outside the economy. A purchase of German made sheet metal presses at an increased price will be reflected in the price that the consumers need to pay. As a result, the cost of the basket of the consumer increases due to an increase in the price of the automobiles. As a result the increase in the prices will be reflected in the CPI.

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