Question

8. If the price of Canadian Whisky increases, will it affect the American CPI, the American deflator, both, or neither?

Answer 1

First of all it should be understood that the prime difference between GDP deflator and CPI is right GDP GDP deflator measures all the goods and services that is produced within the domestic boundary of the country but consumer price index measures only the fix basket of goods and services that is bought by the consumers

Now in the Canadian economy the consumer price index will include all the fixed market basket of goods and services that is produced in the economy not outside economy

So it will not affect the American consumer price index

Also it will not effect the American GDP deflator because GDP deflator only includes that is produced within the economy

So the answer here is neither