A German automobile company produces cars in Canada, some of which are exported to other nations. If the price of these cars increases, what happens to the GDP deflator and the CPI?

Question

Quizplus · Accepted Answer

The GDP deflator measures the price level of all goods and services produced in an economy, while the CPI measures the price level of a basket of goods and services purchased by consumers. If the price of cars increases, this will increase the GDP deflator because cars are included in the calculation of GDP. It will also increase the CPI because cars are included in the basket of goods and services purchased by consumers.

A German Automobile Company Produces Cars in Canada, Some of Which