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.

---

Definitions:

Technological Advance

The process of improving or developing new methods, tools, or products to increase efficiency, productivity, or quality in various fields, especially economics and industry.

Government R&D

Research and development activities funded or conducted by the government to advance knowledge, innovation, and technology for public benefit.

Intense Rivalry

Describes a highly competitive state where businesses or entities aggressively vie for market share, customers, or superiority in a particular field.

Technological Change

Innovations and advancements in technology that improve processes, products, or services.