Consider the following statements with reference to Consumer Price Index CPI and GDP Deflator 1 GDP ...........

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Consider the following statements with

reference to Consumer Price Index (CPI) and

GDP Deflator:

1. GDP deflator includes all goods and

services produced in the country, while

CPI does not.

2. CPI includes imported goods, while

GDP deflator does not.

3. Weights assigned to each good is

constant in CPI, while it changes in GDP

Deflator.

Which of the statements given above is/are

correct?

1 only

1 and 2 only

2 and 3 only

1, 2 and 3

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Explanation:

Statement 1 is Correct. The goods purchased by consumers do not represent all the goods which are produced in a country. GDP deflator takes into account all such goods and services.

Statement 2 is Correct. CPI includes prices of goods consumed by the representative consumer, hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.

Statement 3 is Correct. The weights are constant in CPI - but they differ according to production level of each good in GDP deflator.
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