The GDP Deflator Is Not a Fixed-Quantity Price Index, but the CPI

question 377

Multiple Choice

The GDP deflator is not a fixed-quantity price index, but the CPI is. What is the significance of this fact?

• A)The GDP deflator does not include enough items in its market basket.
• B)A base year cannot be defined for the GDP deflator.
• C)The GDP deflator reflects not only changes in prices, but also changes in consumption patterns as consumers substitute between goods.
• D)The GDP deflator overstates the true rate of inflation, whereas the CPI understates it.

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