Indicate whether the statement is true or false.

1. The GDP deflator reflects the prices of goods and services bought by consumers, and the consumer

price index reflects the price of all final goods and services produced domestically.

ANSWER: F

POINTS: 0 / 1

2. The consumer price index compares the price of a fixed basket of goods and services to the price of

the basket in the base year. On the other hand, the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base years.

ANSWER: T

POINTS: 0 / 1

3. Indexation refers to the automatic correction of a dollar amount for the effects of inflation by law or contract.

ANSWER: T

POINTS: 0 / 1

4. Long term contracts between firms and unions will sometimes include partial or complete indexation

of the wage to the consumer price index. This is called a cost-of-living allowance clause.

ANSWER: T

POINTS: 0 / 1

5. The core inflation rate is the consumer price index with the exclusion of the most volatile components such as energy and food.

ANSWER: T

POINTS: 0 / 1

Multiple Choice

Identify the choice that best completes the statement or answers the question.