The Consumer Price Index (CPI)and the GDP Deflator Are Two

question 120

Multiple Choice

The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

• A)The CPI involves a base year; the GDP deflator does not involve a base year.
• B)The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate.
• C)The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers.
• D)The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

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Definitions:

Low Dividend Policy

A corporate strategy involving the paying out of a small portion of a company’s earnings in the form of dividends, while retaining the majority to reinvest in the business.

Tax Deferred

Financial arrangements where investment gains such as interest, dividends, or capital gains accumulate tax free until the investor takes constructive receipt of the gains.

Net Present Value

The difference between the current value of cash inflows and the current value of cash outflows over a period of time.