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Question
The GDP deflator is not a fixed -quantity price index, but the CPI is. What is the significance of this fact?
A) The GDP deflator does not include enough items in its market basket.
B) A base year cannot be defined for the GDP deflator.
C) The GDP deflator reflects not only changes in prices, but also changes in consumption patterns as consumers substitute between goods.
D) The GDP deflator overstates the true rate of inflation, whereas the CPI understates it.
Answer
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