If import prices were to decline during a period in which domestic prices were increasing, then we would expect that
A) the GDP deflator is probably higher than the consumption and investment deflators.
B) the GDP deflator is almost certainly negative.
C) the government deflator is probably lower than the GDP deflator.
D) the index of export prices climbed markedly.
E) none of the above.

Question

Quizplus · Accepted Answer

The GDP deflator reflects the prices of all goods and services produced domestically, while the consumption and investment deflators more closely reflect the prices of goods and services consumed, including imports. If import prices decline while domestic prices increase, the consumption and investment deflators would likely increase less than the GDP deflator, because they include the lower-priced imports, whereas the GDP deflator reflects only the rising domestic prices.

If Import Prices Were to Decline During a Period in Which