The price of dishwashers increases dramatically, causing a 1 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by
A) more than 1 percent.
B) less than 1 percent.
C) 1 percent.
D) None of the above is correct; this particular price increase will not affect the GDP deflator.

Question

Quizplus · Accepted Answer

The GDP deflator measures the prices of all final goods and services produced in an economy whereas the CPI measures the prices of a specific basket of goods and services consumed by households. If the price of dishwashers increases, it will only affect the CPI and not the GDP deflator to the same extent. Therefore, the increase in the GDP deflator will be less than 1 percent.

The Price of Dishwashers Increases Dramatically, Causing a 1 Percent