Question
In: Economics
Explain how the prices of goods and services used in the CPI differ from the prices...
Explain how the prices of goods and services used in the CPI differ from the prices reflected by GDP deflator.
Solutions
Expert Solution
Price reflected in the CPI suffers from the substitution and quanlity bias, if the price of the goods increase the consumer might consume other goods that are cheaper in the market, that will not be recorded by the CPI because it constitute of a basket of goods, Deflator on the other hand include all the goods and services in the market that are produced in the nation in the given time period.
On the other hand, imported goods price are also recoded in the CPI but the deflator in the market do not include it.
Rahul Sunny answered 2 years agoRelated Solutions
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