Consider an economy that only produces and consumes two goods — cars and blankets. suppose the inflation rate based on the consumer price index is higher during the year than that based on the gdp deflator. assuming underlying tasted and preferences in the economy stay the same, what can you say about the price movements of cars and blankets during the year?
a. the prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goods for the other since thegdp deflator is calculated based on what is actually purchased, it takes that substitution into account
b. the relative price of cars and blankets must have remained unchanged.
c. the prices of cars and blankets must have changed at different rates, causing consumers to substitute one of the goodsfor the other because the consumer price index is a fixed-weight index, it understates the rate of inflation in this situation
d. regardless of what happened the prices of cars and blankets during the year, the inflation rate is the i consumer price index and gdp deflator should always give the same number. if they are different, someone as calculation error