What will happen to the GDP deflator and CPI of America if the price of steel produced in India and sold to America goes up? Explain properly within 100 words

Md Ariful Islam

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The GDP deflator measure price change from the perspective of domestic production of good and services and thus pertain to goods and services purchased by consumers, businesses, government, and foreigners, but not importers. Therefore there will be no effect in America GDP deflator because the steel is imported from India.

On the other hand, CPI measures the prices of only the goods and services bought by consumers therefore, the increase in steel price will have an effect on the American CPI because the steel is bought by American consumers.

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Problem No. 2 From following date compute (i) Real GDP (ii) GDP deflator (iii) inflation rate Year Nominal GDP Rs. billion CPI 2018-19 54195 228.1 2020-21 61583 251.3

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