Q. Consider the following statements regarding the difference between CPI and GDP deflator:

1. CPI covers more goods and services as compared to GDP deflator.
2. GDP deflator does not include prices of imported goods.
3. The weights are constant in CPI but differ according to production levels of each good in GDP deflator.

Which of the above statements is / are correct?
Answer: Only 2 and 3
Notes: CPI covers a basket of goods consumed by the representative consumer, including imported goods, whereas GDP deflator reflects the prices of all goods and services produced domestically and excludes imports. In CPI, weights remain unchanged over time, but in GDP deflator, they fluctuate with the changing production patterns of each good and service.