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

question 40

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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Definitions:

B₂C Buying

The purchasing process in which businesses sell products or services directly to consumers, typically through retail or online channels.

B₂B Purchasing Process

The sequence of steps a business goes through to purchase goods or services from another business, often involving complex decision-making and multiple stakeholders.

Consumer Decision-Making Process

The stages a consumer goes through before purchasing a product, including problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase behavior.

Derived Demand

A situation where the demand for one product or service occurs as a result of the demand for another product or service.