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"As the world is getting in-depth knowledge of economics, some economic concepts are becoming more acceptable day by day. The concept of inflation is one of such concept which became popular during the last century. Two mostly used inflation measurement methods around the world are CPI (Consumer Price Index) and GDP (Gross Domestic Product) deflator.  Now, one method is getting popularity in the world with the passage of time over the other method of measuring inflation.
 
You are required to comment on the major distinction between CPI index and GDP deflator and which method of inflation measurement has advantage over others and on what specific grounds?"

 

 

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i think CIP method has advantage over the GDP,yes the CIP is best because the CIP inflation concept also take in to account of the GDP in its process calculation. so it is most precise
In economics, the GDP deflator (implicit price deflator for GDP) is a measure of the
level of prices of all new, domestically produced, final goods and services in an
economy. GDP stands for gross domestic product, the total value of all final goods
and services produced within that economy during a specified period.
Inflation has been defined as a process of continuously rising prices or equivalently,
of a continuously falling value of money. Various indexes have been devised to
measure different aspects of inflation. The CPI measures inflation as experienced by
consumers in their day-to-day living expenses; the Producer Price Index (PPI)
measures inflation at earlier stages of the production process; the Employment Cost
Index (ECI) measures it in the labor market; the BLS International Price Program
measures it for imports and exports; and the Gross Domestic Product Deflator
(GDP Deflator) measures inflation experienced by both consumers themselves as
well as governments and other institutions providing goods and services to
consumers. Finally, there are specialized measures, such as measures of interest
rates.
The "best" measure of inflation for a given application depends on the intended use
of the data. The CPI is generally the best measure for adjusting payments to
consumers when the intent is to allow consumers to purchase at today's prices, a
market basket of goods and services equivalent to one that they could purchase in
an earlier period.
Thanks a lot Tariq Bhai..
May Allah bless you.. Thanks

Gross Domestic Product:

In economics, GDP uses for gross domestic product-the total value of all goods and services produced within that economy during a specified period.

The GDP deflator is a price index compute changes in prices of all new, nationally and internally produced, final goods and services in an economy.

The GDP deflator is not based on a fixed market basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices.



Consumer price Index:



A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.



Which is better Measure::

Although at first glance it may seem that CPI and GDP Deflator measure the same thing, there are a few key differences:

a) The first is that GDP Deflator includes only domestic goods and not anything that is imported. This is different because the CPI includes anything bought by consumers including foreign goods.

b) The second difference is that the GDP Deflator is a measure of the prices of all goods and services while the CPI is a measure of only goods bought by consumers.

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