An increase in the price of goods bought by firms and the government will show up in:
A) the CPI but not in the GDP deflator.
B) the GDP deflator but not in the CPI.
C) both the CPI and the GDP deflator.
D) neither the CPI nor the GDP deflator.

Question

Quizplus · Accepted Answer

The GDP deflator measures the prices of all final goods and services produced domestically and is therefore affected by price increases of goods bought by firms and the government. On the other hand, the CPI only measures the prices of goods and services bought by consumers and is not affected by price changes of goods bought by firms and the government.

An Increase in the Price of Goods Bought by Firms