If the prices of New Zealand wool blankets imported into Canada increase, what happens to the GDP deflator and the CPI?

Question

Quizplus · Accepted Answer

An increase in the prices of New Zealand wool blankets imported into Canada will result in an increase in the price level for consumers. This will be reflected in the CPI as it measures the prices of a basket of goods and services purchased by consumers. Therefore, the CPI will increase. The GDP deflator measures the overall price level of goods and services produced in an economy. The increase in the prices of imported wool blankets will not affect the overall price level in the economy, so the GDP deflator will not change.

If the Prices of New Zealand Wool Blankets Imported into Canada