Which of the following includes the most categories of spending in an economy?Multiple choice question.The consumer price indexThe inflation deflatorThe GDP deflatorThe investment index
Question
Which of the following includes the most categories of spending in an economy?Multiple choice question.The consumer price indexThe inflation deflatorThe GDP deflatorThe investment index
Solution
The GDP deflator includes the most categories of spending in an economy. Here's why:
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The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. So, it only includes categories related to consumer spending.
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The Inflation Deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. While it includes more categories than the CPI, it still doesn't cover all categories of spending.
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The GDP Deflator is a measure of the price level of all domestically produced final goods and services in an economy. It includes consumer spending, government spending, investments, and net exports. Therefore, it covers the most categories of spending.
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The Investment Index only includes categories related to investments, which is a smaller category of spending in an economy.
So, the GDP deflator includes the most categories of spending in an economy.
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