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    MGT411 MBF GDB Solution CPI Vs GDP Deflator

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    Rana Umair A Khan
    The GDP deflator measures inflation using a basket of domestic goods that can change over time, while the CPI uses a fixed basket of consumer goods including imports. The GDP deflator is calculated quarterly allowing weights to change, whereas CPI revisions are less frequent. Although they provide similar measures of inflation over the long run, in the short term the GDP deflator and CPI can diverge as they use different baskets and updating schedules.

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    MGT411 MBF GDB Solution CPI Vs GDP Deflator

    Uploaded by

    Rana Umair A Khan
    471 views1 page
    The GDP deflator measures inflation using a basket of domestic goods that can change over time, while the CPI uses a fixed basket of consumer goods including imports. The GDP deflator is calculated quarterly allowing weights to change, whereas CPI revisions are less frequent. Although they provide similar measures of inflation over the long run, in the short term the GDP deflator and CPI can diverge as they use different baskets and updating schedules.

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    MGT411 MBF GDB Solution CPI vs GDP Deflator

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    The GDP deflator measures inflation using a basket of domestic goods that can change over time, while the CPI uses a fixed basket of consumer goods including imports. The GDP deflator is calculated quarterly allowing weights to change, whereas CPI revisions are less frequent. Although they provide similar measures of inflation over the long run, in the short term the GDP deflator and CPI can diverge as they use different baskets and updating schedules.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    471 views1 page

    MGT411 MBF GDB Solution CPI Vs GDP Deflator

    Uploaded by

    Rana Umair A Khan
    The GDP deflator measures inflation using a basket of domestic goods that can change over time, while the CPI uses a fixed basket of consumer goods including imports. The GDP deflator is calculated quarterly allowing weights to change, whereas CPI revisions are less frequent. Although they provide similar measures of inflation over the long run, in the short term the GDP deflator and CPI can diverge as they use different baskets and updating schedules.

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    CPI vs GDP Deflator

    GDP Deflator takes into account goods that are produced domestically. The GDP deflator
    is calculated quarterly and it weights may change per calculation.

    If expressed mathematically,

    GDP Deflator = (Nominal GDP/Real GDP) x 100

    Essentially, the GDP deflator compares the price level in the current year to level in the
    base year.

    CPI, which is short for Consumer Price Index, indicates the prices of a representative
    basket of commodities procured by the consumers. It uses a fixed basket of goods and
    services and is a widely used measure of the cost of living faced by consumers of a
    nation. Like the GDP deflator, it also compares prices of the current period to a base
    period.

    CPI tends to consider insignificant goods, even the outdated ones that are not really
    purchased by the consumers anymore. Nevertheless, they are still considered for pricing
    in the fixed basket. Consumption goods are the main priority of the CPI measure.

    As you can see, GDP deflator is not identical with the CPI but provides an alternative to
    each other as a measure of inflation. Over long periods of time, both provide similar
    numbers, but they can diverge in shorter periods.

    Summary:

    1. The GDP deflator measures a changing basket of commodities while CPI


    always indicates the price of a fixed representative basket.
    2. GDP deflator frequently changes weights while CPI is revised very
    infrequently.
    3. CPI will consider imported goods because they are still considered as consumer
    goods while GDP deflator will only contain prices of domestic goods.

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