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Chapter 22: Q 24. (page 553)

Why is the GDP deflator not an accurate measure of inflation as it impacts a household?

Short Answer

Expert verified

Because of the various reasons GDP deflator is not an accurate measure of inflation.

Step by step solution

01

Step 1. Definition

The GDP deflator is mainly used in calculating inflation. It is the ratio between the value of goods and services produced by an economy to the price in a given period of time.

02

Step 2. Explanation

GDP deflator includes only the goods which are produced in an economy and does not include the ones which are purchased by the consumers. So, this is the main reason why it is not considered the accurate measure of inflation. It will also not calculate the accurate measure of the cost of ling of people. To get an accurate measure of inflation GDP deflator must include the goods and services which are consumed in the economy.

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