Question

the data of macroeconomics — end of chapter problem
a. the cpi measures the total expenditure on the economy’s output of goods and services
the total income of everyone in the economy
the overall level of prices in the economy
the percentage of the labor force that is unemployed
b. how does the cpi
the cpi includes domestic and imported goods bought by consumers, whereas the gdp deflator includes only domestically produced goods.
the cpi is a paasche index that has prices fixed over time, whereas the gdp deflator is a laspeyres index that has a fixed basket of goods over time.
the cpi measures only prices of goods and services bought by consumers, whereas the gdp deflator measures the prices of all goods and services produced.
the cpi is used more often by economists than the gdp deflator because studies have proven the cpi to be the more superior measurement.

Explanation:

Part a

The Consumer Price Index (CPI) is a measure that tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. So it measures the overall level of prices in the economy. The total expenditure on the economy’s output is related to GDP (Gross Domestic Product) concepts, and total income of everyone in the economy is also related to GDP (since in a closed economy, income equals output). The percentage of the labor force that is unemployed is the unemployment rate, not related to CPI.

• First option: CPI includes goods bought by consumers (including imported ones if consumers buy them), while GDP deflator includes only domestically produced goods (since GDP is about domestic production). This is correct.
• Second option: CPI is a Laspeyres index (fixed basket over time), GDP deflator is a Paasche - like index (basket changes as production changes). So this statement is wrong.
• Third option: CPI measures prices of consumer - bought goods and services, GDP deflator measures prices of all domestically produced goods and services (since GDP is about all domestic production). This is correct.
• Fourth option: There is no proof that CPI is a more superior measurement, and both have their uses. Economists use both depending on the context. So this is wrong.

So the correct options are:

Answer:

$\boldsymbol{\text{the overall level of prices in the economy}}$

Part b