There are a number of statistics computed to measure the price level, such as the GDP deflator and the CPI. The choice of which of these measures to use depends in many cases on the specific question in which you are interested. For each of the following situations, state whether the CPI or GDP deflator is a more appropriate measure to use and explain why the statistic is preferred.
a. You are interested in looking at the impact of higher prices of imported oil in the overall cost of living.
b. The government is interested in whether increases in defense spending are affecting the price level.
c. An economic consulting firm is investigating the impact on the aggregate price level of more computers and electronic technology used in production.

Question

Quizplus · Accepted Answer

The Answer is a. The CPI is the more appropriate statistic, because the price of imports is not included in the GDP deflator.
b. The GDP deflator is the more appropriate statistic, because the CPI does not include the prices of goods and services purchased by the government sector.
c. The GDP deflator is more appropriate, because the CPI does not include prices of goods and services purchased by businesses or the government sector.

There Are a Number of Statistics Computed to Measure the Price