The Consumer Price Index and the GDP Deflator Are Two

question 121

Multiple Choice

The consumer price index 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 two measures are constructed differently,but they always indicate the same inflation rate.
• B)The substitution bias applies equally to both measures.
• C)A change in the price of Korean televisions is reflected in the U.S.consumer price index but not in the U.S.GDP deflator.
• D)All of the above are correct.

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Definitions:

Appreciate the Dollar

The increase in value of the US dollar relative to other currencies, leading to increased purchasing power internationally.

Demand for Pesos

The desire or willingness of market participants to acquire Mexican pesos, influenced by factors like investment returns and currency stability.

Supply of Pesos

The total amount of Mexican Pesos available in the financial markets, influenced by factors such as monetary policy and economic conditions.

Exchange Rate

The rate at which one currency can be exchanged for another, influencing international trade and investments.