What is a major result of imported consumer goods not being directly included in the GDP deflator?
Answer and explanation
Correct answer: Import price rises may affect CPI differently from the deflator
The GDP deflator measures prices of final goods and services produced domestically, whereas the Consumer Price Index may include goods purchased by households even when they are imported. Consequently, a rise in import prices can raise CPI without directly raising the GDP deflator by the same amount. Therefore option A is correct; the other choices incorrectly claim that the deflator is zero, imports are domestic output, or nominal GDP is unmeasurable.
Frequently asked questions
What is the correct answer to this question?
Import price rises may affect CPI differently from the deflator
Why is this the correct answer?
The GDP deflator measures prices of final goods and services produced domestically, whereas the Consumer Price Index may include goods purchased by households even when they are imported. Consequently, a rise in import prices can raise CPI without directly raising the GDP deflator by the same amount. Therefore option A is correct; the other choices incorrectly claim that the deflator is zero, imports are domestic output, or nominal GDP is unmeasurable.
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.
