181.The CPI differs from the GDP deflator in that
a.the CPI is an inflation index, while the GDP deflator is a price index.
b.substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
c.increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI.
d.increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI.
182.An increase in the price of dairy products produced domestically will be reflected in
a.both the GDP deflator and the consumer price index.
b.neither the GDP deflator nor the consumer price index.
c.the GDP deflator but not in the consumer price index.
d.the consumer price index but not in the GDP deflator.
183.An increase in the price of bread produced domestically will be reflected in
a.both the GDP deflator and the consumer price index.
b.neither the GDP deflator nor the consumer price index.
c.the GDP deflator but not in the consumer price index.
d.the consumer price index but not in the GDP deflator.
184.If the price of domestically produced power tools increases, then
a.the consumer price index and the GDP deflator will both increase.
b.the consumer price index will increase, and the GDP deflator will be unaffected.
c.the consumer price index will be unaffected, and the GDP deflator will increase.
d.the consumer price index and the GDP deflator will both be unaffected.
185.A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then
a.the GDP deflator and the CPI will both increase.
b.the GDP deflator will increase and the CPI will be unchanged.
c.the GDP deflator will be unchanged and the CPI will increase.
d.the GDP deflator and the CPI will both be unchanged.
186.A decrease in the price of domestically produced industrial robots will be reflected in
a.both the GDP deflator and the consumer price index.
b.neither the GDP deflator nor the consumer price index.
c.the GDP deflator but not in the consumer price index.
d.the consumer price index but not in the GDP deflator.
187.A decrease in the price of domestically produced nuclear reactors will be reflected in
a.both the GDP deflator and the consumer price index.
b.neither the GDP deflator nor the consumer price index.
c.the GDP deflator but not in the consumer price index.
d.the consumer price index but not in the GDP deflator.
188.In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the
a.GDP deflator rises much more than does the consumer price index.
b.consumer price index rises much more than does the GDP deflator.
c.GDP deflator and the consumer price index rise by about the same amount.
d.consumer price index rises slightly more than does the GDP deflator.
189.In general, if a consumer good is produced domestically and consumed domestically, a decrease in its price will have which of the following effects?
a.The consumer price index will decrease relatively more than will the GDP deflator.
b.The consumer price index and the GDP deflator will decrease by the same amount.
c.The consumer price index will decrease relatively less than will the GDP deflator.
d.One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator.
190.In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?
a.The consumer price index will increase relatively more than will the GDP deflator.
b.The consumer price index and the GDP deflator will increase by the same amount.
c.The consumer price index will increase relatively less than will the GDP deflator.
d.One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator.
The Correct Answer and Explanation is :
Here are the correct answers to the questions, along with explanations:
181. Correct Answer: c – increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI.
- Explanation: The CPI measures the prices of goods and services bought by typical consumers, including imports. In contrast, the GDP deflator measures the prices of all goods and services produced within the domestic economy, which includes both domestically produced goods and imports. When the price of foreign-produced goods rises and U.S. consumers buy more of these, the CPI reflects this change, but the GDP deflator only includes prices of goods produced domestically, not imports.
182. Correct Answer: a – both the GDP deflator and the consumer price index.
- Explanation: Dairy products produced domestically affect both the CPI and the GDP deflator. The CPI includes the prices of goods consumed by households, and domestically produced dairy products would be part of this. The GDP deflator includes all goods produced within the country, so domestically produced dairy would also be included here.
183. Correct Answer: a – both the GDP deflator and the consumer price index.
- Explanation: Bread, being a domestically produced good, will be included in both the CPI and the GDP deflator. The CPI includes goods that households consume, while the GDP deflator includes goods produced domestically, so both indexes would reflect price changes in bread.
184. Correct Answer: c – the consumer price index will be unaffected, and the GDP deflator will increase.
- Explanation: Power tools are typically considered capital goods, not consumer goods. While the CPI focuses on the prices of goods purchased by consumers, the GDP deflator includes all domestically produced goods, including capital goods. Thus, an increase in the price of power tools would show up in the GDP deflator but not the CPI.
185. Correct Answer: b – the GDP deflator will increase and the CPI will be unchanged.
- Explanation: The GDP deflator includes all goods produced domestically, including those produced by foreign companies operating in the U.S. An increase in the price of steel produced by a Korean company in the U.S. would be reflected in the GDP deflator. However, because the steel is domestically produced, the CPI would not reflect the increase unless the steel is bought by consumers.
186. Correct Answer: c – the GDP deflator but not in the consumer price index.
- Explanation: A decrease in the price of industrial robots, which are likely capital goods, would affect the GDP deflator but not the CPI. The CPI includes consumer goods and services, while the GDP deflator includes all goods produced domestically, including capital goods like industrial robots.
187. Correct Answer: c – the GDP deflator but not in the consumer price index.
- Explanation: The price of nuclear reactors is related to capital goods and will influence the GDP deflator, but it won’t appear in the CPI because nuclear reactors are not typically consumed by households.
188. Correct Answer: d – consumer price index rises slightly more than does the GDP deflator.
- Explanation: Imported oil directly affects the consumer price index because it influences consumer goods like gasoline and heating oil. The GDP deflator would rise less since it primarily includes domestically produced goods, and the price of imports isn’t directly included unless consumed domestically. Hence, the CPI would likely increase more than the GDP deflator.
189. Correct Answer: a – The consumer price index will decrease relatively more than will the GDP deflator.
- Explanation: A decrease in the price of a good consumed domestically will lower the CPI more than the GDP deflator because the CPI reflects the prices paid by consumers, while the GDP deflator includes the prices of all domestically produced goods, including those used in production.
190. Correct Answer: a – The consumer price index will increase relatively more than will the GDP deflator.
- Explanation: An increase in the price of a domestically produced consumer good will affect the CPI more directly, as it measures consumer prices. While the GDP deflator would also include the price increase, it includes all goods produced domestically, so the effect on the deflator would be less pronounced compared to the CPI, which is more focused on consumer consumption.