Changes in the GDP deflator reflect:

• A. Changes in the prices of a fixed basket of consumer goods and services
• B. Changes in the cost of living for urban households
• C. Changes in the prices of imported goods only
• D. Changes in the prices of all domestically produced final goods and services

Answer: (D)

Verified step by step guidance

1. Understand that the GDP deflator is a price index that measures the average price level of all domestically produced final goods and services in an economy.
2. Recall that the GDP deflator differs from the Consumer Price Index (CPI), which measures the price changes of a fixed basket of consumer goods and services purchased by urban households.
3. Recognize that the GDP deflator includes prices of all goods and services produced domestically, not just consumer goods, and excludes imported goods.
4. Note that the GDP deflator is calculated as the ratio of nominal GDP to real GDP, expressed as a percentage: \[GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100\]
5. Conclude that changes in the GDP deflator reflect changes in the prices of all domestically produced final goods and services, capturing overall inflation or deflation in the economy.