Economic Awareness - Sectors of Indian Economy
Which of the following is TRUE about the relationship between Consumer Price Index (CPI) and GDP deflator?
Which of the following is TRUE about the relationship between Consumer Price Index (CPI) and GDP deflator?
hard Q10 of 15
Step-by-Step Solution
Step 1: Understand CPI and GDP deflator scope
CPI measures price changes of a fixed basket of consumer goods and services purchased by households.Step 2: Understand GDP deflator scope
GDP deflator measures price changes of all goods and services produced domestically, including investment and government consumption.Step 3: Analyze options
CPI and GDP deflator differ in coverage; GDP deflator is broader. CPI is not broader than GDP deflator. GDP deflator is not based on retail prices.Final Answer:
GDP deflator includes all goods and services produced domestically, CPI focuses on consumer goods and services → Option DQuick Check:
GDP deflator is broader, covers all domestic goods ✅
Quick Trick: GDP deflator covers all domestic production; CPI covers consumer basket.
Common Mistakes:
- Assuming CPI and GDP deflator cover same goods or price levels.
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