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17 June, 03:56

In which of the following cases would there be an effect on the value of the U. S. consumer price index, but not on the value of the U. S. GDP deflator?

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  1. 17 June, 04:06
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    A. Most of the bananas that are produced by a certain company in Honduras end up in U. S. grocery stores, and the price of these bananas increases.

    B. All of the truck tires that are produced by a certain company in South Korea are sold to the U. S. military, and the price of these tires decreases.

    C. All of the truck tires that are produced by a certain company in California are sold to the U. S. military, and the price of these tires decreases.

    D. Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases.

    Answer:

    A) Most of the bananas that are produced by a certain company in Honduras end up in U. S. grocery stores, and the price of these bananas increases.

    Explanation:

    The gross domestic product (GDP) deflator reflects the prices of all the final and legal products and services produced within a country, whereas the consumer price index (CPI) reflects the prices of products and services purchased by consumers. The CPI might include imported goods (e. g. clothes and toys), while the GDP deflator includes only domestic goods.
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