What is the difference between the consumer price index (CPI)and the gross domestic product (GDP)deflator?
A) Under normal circumstances,the CPI is the better measure of the overall price level.
B) If inflation is high,the CPI is the better measure of the overall price level; if inflation is low or deflation is occurring,the GDP deflator is the better measure.
C) The GDP deflator is used only during periods of deflation; the rest of the time we use the CPI to measure the overall price level.
D) If we want to examine how price changes affect the overall economy,the GDP deflator is the better measure.
E) The CPI must be equal to the GDP deflator because of the "equation of consumer homogeneity."

Question

Quizplus · Accepted Answer

The main difference between CPI and GDP deflator is that CPI measures the price changes of a fixed basket of goods and services purchased by consumers, while GDP deflator measures the price changes of all goods and services produced domestically. Therefore, if we want to examine how price changes affect the overall economy, GDP deflator is the better measure as it includes all goods and services produced domestically, including those not included in the consumer basket.

What Is the Difference Between the Consumer Price Index (CPI)and