How Do the GDP Deflator and the Consumer Price Index

question 17

Multiple Choice

How do the GDP deflator and the consumer price index compare to each other?

• A) The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.
• B) The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.
• C) Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.
• D) Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and manufacturing overhead) in the cost of a product.

Total Period Cost

The sum of all costs incurred by a business during a specified period, excluding product costs.

Variable Costing

An accounting method that only includes variable manufacturing costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.

Finished Goods Inventory

Items in stock that are completed and ready for sale, representing one of the stages in the production inventory.