Question

The CPI differs from the GDP deflator in that a. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. b. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. c. the CPI is a price index, while the GDP deflator is an inflation index. d. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.

Answer 1

The CPI differs from the GDP deflator in that increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. (Option B)

What is the CPI and GDP deflator?

The consumer price index measures the changes in price of a basket of good purchased by consumers. It is used to measure inflation. The Federal Reserve uses the consumer price index to gauge its monetary policy.

CPI = (cost of basket of goods in current period / cost of basket of goods in base period) x 100

The GDP deflator is an economic measure of the price levels of all domestically produced goods in the current year. GDP deflator is the ratio of the nominal GDP and the real GDP. Real GDP has been adjusted for inflation by calculating its value using a base price. Nominal GDP is calculated using current year prices.  

The GDP deflator measures inflation. The GDP deflator only includes goods and services produced in an economy.

GDP deflator = (nominal GDP / real GDP) x 100

To learn more about, consumer price index, please check: https://brainly.com/question/26382640

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