Suppose the price of CD players increases dramatically, causing a 1 percent increase in the CPI. By how much will the GDP deflator most likely increase?

Question

Quizplus · Accepted Answer

The CPI includes CD players in its basket of goods and services, so the 1 percent increase in CPI reflects the increase in the price of CD players. However, the GDP deflator includes all goods and services produced in the economy, and CD players are just a small part of it. Therefore, the increase in the GDP deflator is likely to be less than 1 percent.

Suppose the Price of CD Players Increases Dramatically, Causing a 1