Question

An increase in the price of Apple computers manufactured in California and purchased by Americans will be reflected in:

1.both the US GDP deflator as well as the US CPI.

2.the US GDP deflator but not the US CPI.

3.the US CPI but not the US GDP deflator.

4.neither the US GDP deflator as well as the US CPI.

Answer 1

Option 3.

• When the price of any good produced in a foreign country and imported to another country increases, then it is reflected by the country's CPI but not by its GDP deflator.
• This is because, CPI measures the change in the price of consumer's basket of goods.
• This also includes all the goods that are imported and purchased by the consumer.
• As GDP does not include the value of foreign goods and services, the GDP deflator also does not reflect the price level changes of an imported good.
• Hence, an increase in Apple computer's manufactured by California is only included in the CPI of US but not in its GDP deflator.