Question

2. Alternative price indexes 

Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price Index (CPI) and the GDP deflator. 

The GDP deflator for this year is calculated by dividing the _______  using _______ by the _______  using _______  and multiplying by 100. However, the CPI reflects only the prices of all goods and services _______ .

Answer 1

GDP deflator for the year is calculated by dividing the

Value of all the goods and services produced in the year ( current year quantities at current year prices ) using this year prices by the

value of all goods and services produced in the economy this year ( current year quantities at base year prices) using base year prices and multiplying by 100.

GDP deflator = Nominal GDP / real GDP ×100

However the CPI reflects only the price of goods and services Bought by the consumers .