The key difference is the basket of goods that is being bought The GDP deflator

The key difference is the basket of goods that is

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Differences between the two formulas? The key difference is the basket of goods that is being bought. The GDP deflator studies the basket of goods that is produced domestically - meaning that it studies the basket of goods that represent the total production of the domestic economy CPI studies the basket of consumer goods. The basket is constructed to reflect the types and quantities of goods that are purchased by a typical U.S. household. GDP basket includes things that the household does not purchase, like coal fired power plants, locomotives, subway stations, city buses, aircraft carriers and nuclear submarines The consumer basket includes things that households purchase but are not counted in GDP (i.e. imports). Inflation
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- The percentage change in a price index Inflation rate in 2013 = Price index in 2013 - Price index in 2012 / Price index in 2012 There are two types of price indices, which are used to measure inflation: 1. GDP deflator 2. CPI As can be seen in the graph below, the choice of price index does not have a large impact on the resulting rate of inflation.
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  • Fall '10
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  • gross domestic product

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