When calculating price indices like the GDP deflator and the CPI, we multiply the ratio by 100. Why? Neither statement is true. Statement a: We multiply by 100 to put things into percentage terms. Statement b: We multiply by 100 to normalize the base year to 100. Both statements are true.
When calculating price indices like the GDP deflator and the CPI, we multiply the ratio by 100. Why? Neither statement is true. Statement a: We multiply by 100 to put things into percentage terms. Statement b: We multiply by 100 to normalize the base year to 100. Both statements are true.
Chapter17: Inflation
Section: Chapter Questions
Problem 5SQ
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Question
When calculating price indices like the GDP deflator and the CPI , we multiply the ratio by 100. Why?
Neither statement is true.
Statement a: We multiply by 100 to put things into percentage terms.
Statement b: We multiply by 100 to normalize the base year to 100.
Both statements are true.
Expert Solution
Step 1
Introduction
A measure of the entire price level of all products and services produced inside an economy is the GDP deflator. It is computed by subtracting the nominal GDP from the actual GDP and multiplying the result by 100. The price of a variety of consumer products and services is gauged by the CPI, in contrast. It's used to calculate the typical change in-home product price between two specified periods. It is a total measurement of changes in product pricing trends while maintaining quality.
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