When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator rather than the consumer price index because
A) the GDP deflator is calculated for a narrow market basket of goods, approximating those items included in our measure of consumption expenditures.
B) the GDP deflator calculates changes in the prices of items that more closely approximate those included in GDP.
C) the GDP deflator is always less than the consumer price index, and therefore, it is a more stable index.
D) the GDP deflator is the sum of the consumer price index and the wholesale price index.

Question

Quizplus · Accepted Answer

The GDP deflator is better for adjusting nominal GDP for price changes because it specifically calculates changes in the prices of all goods and services produced in the economy, while the consumer price index only calculates changes in the prices of a specific basket of goods and services typically consumed by households. Therefore, the GDP deflator more closely approximates the items included in GDP.

When Adjusting Nominal GDP for Price Changes, It Is Preferable