What is the key difference between the Consumer Price Index (CPI) and the GDP deflator? A. The GDP deflator includes imports, while the CPI only includes domestically produced goods and services. B. The formulas used to construct the indexes bear little resemblance to each other. C. The CPI is broader in coverage than is the GDP deflator. D. The two indexes measure price changes for different "baskets" of products.

The correct answer in this case is option D. or The two indexes measure price changes for different "baskets" of products.

Explanation:

Both GDP deflator and Consumer Price Index (CPI) measure the variation or fluctuation in the price level of goods and services in the economy. GDP deflator is measured based on the variable baskets of goods and services produced by any country or economy. In other words, GDP deflator is estimated based on the costs or market value of a specific basket of goods and services produced by the country or economy which is compared with the cost or market value of the same set of goods and service in any previous base year. Under GDP deflator, this basket of goods and services varies periodically. CPI also uses the same concept but the specific basket of goods and services used to calculate CPI is fixed and does not vary over time or periodically, unlike GDP deflator.