Skip to content

CA Foundation · Business Economics · Determination of National Income

Which of the following statements about the Consumer Price Index (CPI) and the GDP deflator is correct?

CPI measures a fixed basket of consumer goods, including imports, whereas the GDP deflator covers all domestically produced goods and services and excludes imports. The deflator also includes investment and government output, which CPI does not, so the two indices can differ.

  1. AThe GDP deflator is based on a fixed basket of goods purchased by consumers, while CPI covers all goods produced domestically
  2. BCPI measures prices of a fixed basket of consumer goods, including imported goods, while the GDP deflator covers only domestically produced goodsCorrect
  3. CBoth indices include imported consumer goods and capital goods
  4. DCPI covers all goods and services produced in the economy, including investment goods

Explanation

CPI tracks the cost of a fixed basket bought by consumers and so includes imported items. The GDP deflator covers all domestically produced final goods and services, including investment and government goods, but excludes imports. Option A swaps the two descriptions.

Did you get it right without looking?

One question tells you little. A timed set on Determination of National Income shows your real accuracy, how long you take and where you lose marks.

Practise Determination of National IncomeFree diagnostic mock

More Determination of National Income questions