2. The table below shows GDP deflator and CPI for 2019 and 2020. Calculate the inflation rate from 2019 to 2020 for each of these indices. Explain two reasons why GDP deflator differs from CPI? Year GDP Deflator CPI 2019 112.98 256.974 2020 114.44 260.474

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Price Index Analysis

A price index is used to measure inflation in most countries and is focused on a collection of products and services significant to a particular economic segment. It is a measure of changing prices over some time. The price index is a scale or a valuable device to measure changes in price levels. The economists randomly choose a certain year as the base year to convert the amount spent on a basket into a price index.