Between 2004 and 2011, we observed a significant increase in commodity prices. In Australia, we would expect that this increase would cause: Group of answer choicesa larger increase in the CPI compared to the GDP deflator. an equal increase in the CPI and GDP deflator. a larger increase in the GDP deflator compared to the CPI. no change in the CPI and an increase in the GDP deflator. no change in the GDP deflator and an increase in the CPI.
Question
Between 2004 and 2011, we observed a significant increase in commodity prices. In Australia, we would expect that this increase would cause: Group of answer choicesa larger increase in the CPI compared to the GDP deflator. an equal increase in the CPI and GDP deflator. a larger increase in the GDP deflator compared to the CPI. no change in the CPI and an increase in the GDP deflator. no change in the GDP deflator and an increase in the CPI.
Solution
The answer to this question depends on the specific commodities that saw a price increase.
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, while the GDP deflator is a measure of the price levels of all new, domestically produced, final goods and services in an economy.
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If the commodities that increased in price are largely consumer goods and services, then we would expect a larger increase in the CPI compared to the GDP deflator. This is because the CPI is directly influenced by the prices of consumer goods and services.
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If the commodities that increased in price are evenly spread across consumer goods and services and other types of goods and services (like investment goods, government spending, etc.), then we would expect an equal increase in the CPI and GDP deflator.
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If the commodities that increased in price are largely other types of goods and services (not consumer goods and services), then we would expect a larger increase in the GDP deflator compared to the CPI. This is because the GDP deflator reflects prices for all new, domestically produced, final goods and services in an economy.
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If the commodities that increased in price have no direct impact on the basket of goods and services considered in the CPI, then we would expect no change in the CPI and an increase in the GDP deflator.
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If the commodities that increased in price have no direct impact on the goods and services considered in the GDP deflator, then we would expect no change in the GDP deflator and an increase in the CPI.
Without more specific information about which commodities increased in price, it's impossible to definitively answer this question.
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