Which of the following statements is/are <strong>correct</strong>?<br>1. GDP deflator captures the average price of an unchanging basket of commodities that constitutes the GDP of the country.<br>2. GDP deflator can be used to measure the real GDP of the economy but not the inflation rate.<br>Select the correct answer using the code given below.
- A. 1 only
- B. 2 only
- C. Both 1 and 2
- D. Neither 1 nor 2 ✓
Correct Answer: D. Neither 1 nor 2
Explanation
The GDP deflator reflects the prices of all domestically produced goods and services, not a fixed/unchanging basket (like CPI). It is commonly used to measure the broad inflation rate in an economy. Hence both statements are incorrect.
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