If the price of imported computers falls while the price of domestic computers rises, what provides the main direct effect on the GDP deflator?
Answer and explanation
Correct answer: From the rise in domestic computer prices
The GDP deflator is based on the prices of final goods and services produced within the domestic economy. Domestic computers are part of that production and their price rise can directly affect the deflator. Imported computers are not domestic output, so their price fall does not have the same direct effect. Hence option A is correct; options C and D ignore the coverage rule, while B confuses imports with domestic production.
Frequently asked questions
What is the correct answer to this question?
From the rise in domestic computer prices
Why is this the correct answer?
The GDP deflator is based on the prices of final goods and services produced within the domestic economy. Domestic computers are part of that production and their price rise can directly affect the deflator. Imported computers are not domestic output, so their price fall does not have the same direct effect. Hence option A is correct; options C and D ignore the coverage rule, while B confuses imports with domestic production.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
