Question

a.      In each of the following cases, does the increase in prices affect CPI, GDP deflator, or both in Pakistan? Analyze and justify your answer.                                          

 

i.    The price of imported capital goods used in the production of sugar has increased.

The price of Tapal tea has increased

Answer 1

1. The consumer price index (CPI) includes imports which consumers utilize within the country. Thus, an increase in the price of imports, including capital goods will influence the CPI.
2. Tapal Tea contributes to a larger percentage of consumer budgets. Additionally, the GDP deflator includes all the goods services offered locally, but CPI includes the goods and services used by typical consumers. Therefore, an increase in the price of Tapal Tea will affect both GDP and CPI.