CPI vs GDP Deflator

What do CPI and GDP deflator have in common?;

Both are used to measure price inflation and reflect the current economic state of a nation.

What does the GDP deflator take into account?;

Goods and services produced domestically; excludes imported goods.

How often is the GDP deflator calculated and why can its weights change?;

Calculated quarterly; weights may change because it reflects current production and expenditure patterns.

What does GDP stand for and what does it measure?;

Gross Domestic Product; the total value of all final goods and services produced within a country’s borders in a specified period.

What are the two types of GDP?;

Nominal GDP and Real GDP.

What is the mathematical formula for the GDP deflator?

GDP Deflator = (Nominal GDP ÷ Real GDP) × 100.

What does the GDP deflator essentially compare?

The price level in the current year to the price level in the base year.

How is the GDP deflator different from price indices like CPI?

Unlike CPI’s fixed basket, the GDP deflator uses a changing basket weighted by the market value of all goods and services produced, allowing adjustments based on changing consumer and investment patterns.

What does CPI stand for and what does it measure?

Consumer Price Index; measures the cost of a fixed basket of goods and services purchased by consumers.

What is the main purpose of CPI?

To indicate changes in the cost of living faced by consumers of a nation.

What is a limitation of the CPI’s fixed basket

It can include outdated or insignificant goods that consumers no longer purchase regularly.

What type of goods does CPI focus on?

Consumer goods only; excludes investment goods, machinery, and industrial equipment.

How do CPI and GDP deflator differ in terms of coverage?

CPI includes consumer goods (including imports) but excludes capital goods; GDP deflator includes all domestically produced goods and services but excludes imports.

How do CPI and GDP deflator relate as measures of inflation

They are not identical but provide alternatives to each other; over long periods, they yield similar results, but in shorter periods, they may diverge.