Michael and Casey are having an argument. Casey believes that over the past year, the economy is experiencing rapid inflation, while Michael says that the economy actually experienced disinflation during this period. The easiest way for Michael and Casey to settle their argument is to look at GDP figures for the past year.

Question

Quizplus · Accepted Answer

GDP measures the market value of final goods produced in a country in a given year. An increase in GDP may be due to inflation, or it may be due to an increase in the production of final goods, or it may be due to a combination of both of these factors. Thus, looking at GDP by itself does not provide a clear answer to what has happened to prices. Michael and Casey would be better served by looking at the changes in price indexes such as the CPI. The CPI tracks movements in the average level of prices for a market basket of consumer goods over time.

Michael and Casey Are Having an Argument