When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator rather than the consumer price index because the GDP deflator is
A) calculated for a more general market basket of goods than the consumer price index.
B) always less than the consumer price index and, thus, is a more stable index.
C) the sum of the consumer price index and the wholesale price index.
D) the only price index adjusted annually for changes in the quality of products.

Question

Quizplus · Accepted Answer

The GDP deflator is a more general index that measures price changes in all goods and services produced in an economy, whereas the consumer price index focuses only on a specific basket of goods typically purchased by households. Therefore, the GDP deflator is a better measure for adjusting nominal GDP for price changes as it includes a broader range of goods and services.

When Adjusting Nominal GDP for Price Changes, It Is Preferable