The predetermined basket of goods is averaged and the goods are weighted against one anther based on … In macroeconomics, we generally use the GDP deflator rather than the CPI as our measure of the price level because we are dealing with economy totals, of which consumer spending is just one part. The GDP is one of many economic indicators investors can use to gauge the growth rate and strength of an economy. GDP stands for gross domestic product, which is meant to represent the total dollar value of all goods and services produced over a specific period of time.

Among the many other price indices, the consumer price index (CPI) is the most frequently cited. First, the CPI measures only the change in the prices of a “basket” of goods consumed by a typical household. The GDP deflator is not the only index measure of the price level.

The CPI plays a vital role in the determination of the real GDP. The CPI, which stands for consumer price index, is a measure of a theoretical basket of goods meant to represent what people are buying.

The difference between nominal and real variables is important in macroeconomics. The CPI differs from the GDP deflator in two important ways.

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