- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 11. Understanding Business Cycles
- Subject 7. Inflation
CFA Practice Question
Which of the following is NOT a true statement about the Consumer Price Index (CPI) and the GDP deflator?
B. The CPI includes imports and used goods while the GDP deflator does not.
C. The CPI tends to overstate inflation but the GDP deflator does not.
D. Neither the CPI nor the GDP deflator adjusts for quality improvements in goods.
A. The CPI is based on a fixed market basket of goods while the GDP deflator is based on all goods produced in the country.
B. The CPI includes imports and used goods while the GDP deflator does not.
C. The CPI tends to overstate inflation but the GDP deflator does not.
D. Neither the CPI nor the GDP deflator adjusts for quality improvements in goods.
Correct Answer: C
Most economists believe that all price indexes tend to overstate inflation because none can adequately adjust for quality improvements in goods.
User Contributed Comments 6
| User | Comment |
|---|---|
| sharon | any comment on B? |
| examinee | I think both should include import and used goods in their measure. |
| hinchung | From my point of views, because GDP is include imports, B is not the correect answer. GDP includes net export and the net export = export - import. Right? |
| haarlemmer | Both serve as measures to GDP, right. in that sense, imports and used goods are excluded from the index. that is my thought. |
| Yooo | CPI is no measure of GDP. |
| kuan | GDP does not include used goods but include exports/imports. But GDP Deflator does not include used goods and does not look at import and exports on its own but net export as a whole. Any comments? |