The GDP deflator, which is a Paasche index, tends to ______ the rate of inflation.
A) overstate
B) understate
C) not affect
D) none of the above

Question

Quizplus · Accepted Answer

The GDP deflator, being a Paasche index, tends to understate the rate of inflation because it uses the current year's basket of goods and services, which can shift consumption away from goods that have become relatively more expensive.

The GDP Deflator, Which Is a Paasche Index, Tends to ______