For the U.S. perspective, imports are the goods produced by foreigners, imported
ID: 1229085 • Letter: F
Question
For the U.S. perspective, imports are the goods produced by foreigners, imported to the U.S., and consumed by Americans. Exports are the goods produced by Americans, exported to other countries, and consumed by foreigners. U.S. GDP does not include imports because they are not produced in the U.S. However, they will be included in the market basket because they are consumed by Americans. At the same time, exports are included in GDP because they are produced in the U.S., but they will not be part of the market basket for Americans. Then which of the following is most likely to be true if the prices of some imports increase?A. The CPI will increase, but the GDP deflator will not increase.
B. The GDP deflator will increase, but the CPI will not increase.
C. Both the GDP deflator and CPI will increase.
D. Neither the GDP nor the CPI will increase.
E. None of the above.
Explanation / Answer
For the U.S. perspective, imports are the goods produced by foreigners, imported to the U.S., and consumed by Americans. Exports are the goods produced by Americans, exported to other countries, and consumed by foreigners. U.S. GDP does not include imports because they are not produced in the U.S. However, they will be included in the market basket because they are consumed by Americans. At the same time, exports are included in GDP because they are produced in the U.S., but they will not be part of the market basket for Americans. Then which of the following is most likely to be true if the prices of some imports increase?
A. The CPI will increase, but the GDP deflator will not increase.