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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase

a. both the CPI and the GDP deflator.

b. neither the CPI nor the GDP deflator.

c. the CPI but not the GDP deflator.

d. the GDP deflator but not the CPI.

To determine

Theprice hike and its affect on CPI and GDP deflator.

Explanation

Option (d)

Even though the gun is part of GDP, it is not part of the basket of goods and services bought by a typical consumer. Thus, the price hike shows up in the GDP deflator but not in the CPI. Thus, option‘d’ is correct.

Option (a)

The rise in price of rifle does not affect the CPI as it is not bought by a typical consumer part of the basket of goods and services...

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