Question
In: Economics
Consider an economy. Government has measured inflation in this economy in the recent year using two...
Consider an economy. Government has measured inflation in this economy in the recent year using two methods: CPI method and the DGP-deflator method. The results showed that CPI inflation was higher than GDP-deflator measured inflation. How can you explain this? Support with theory and examples.
Solutions
Expert Solution
CPI and GDP deflator shows different level of inflation because these are the two different methods of measuring inflation. CPI includes money spent by urban consumers on goods and services whereas GDP deflator captures change in price of goods consumed by consumers, business people, government or you can say that GDP deflator capture change in price of all goods.
CPI was higher than GDP deflator due to rise in price of goods consumed by consumers more than price of other goods.
Rahul Sunny answered 2 years agoRelated Solutions
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