Question

1). If the price of Australian-made shoes imported into the United States increase, then, at a result,

Answer: the GDP deflator increases but the consumer price index does not increase.

2). Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and in the CPI?

Answer: the CPI and the GDP deflator will be unaffected.

I juxtapose these two questions together because I don’t understand why, in both scenarios there is a price change in imported goods yet GDP deflator is only affected in the first scenrio.

Answer 1

GDP defoator is affected in the first case because import of American shoes is a final consumption expenditure where import of German made ore trucks is not a final consumption expenditure.

Hope this helps

Thanks!