EconomicsMacro Economics: National Income Accounting

One reason why the CPI may differ from the GDP deflator is that:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → consumer goods do not cover all the goods produced in a country

The CPI covers only the goods bought by the representative consumer. The GDP deflator covers all goods and services produced in the country, so the two can differ.

Option (1) the GDP deflator uses constant weights for all goods — Incorrect. Weights are constant in the CPI; in the GDP deflator they change with production.

Option (2) consumer goods do not cover all the goods produced in a country — Correct. Consumer goods are only part of all goods produced, which the deflator covers.

Option (3) the CPI covers all goods and services produced in a country — Incorrect. It is the GDP deflator that covers all goods produced.

Option (4) the GDP deflator includes only the prices of imported goods — Incorrect. The GDP deflator does not include prices of imported goods; the CPI does.

NCERT (2026-27): “2.4 Nominal and Real GDP … Like CPI, the index for wholesale prices is called Wholesale Price Index (WPI). In countries like USA it is referred to as Producer Price Index (PPI). Notice CPI (and analogously WPI) may differ from GDP deflator because
1. The goods purchased by consumers do not represent all the goods which are produced in a country. GDP deflator takes into account all such goods and services.
2. CPI includes prices of goods consumed by the representative consumer, hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.
3. The weights are constant in CPI – but they differ according to production level of each good in GDP deflator.”