How does this affect the gdp deflator

Assignment Help Macroeconomics

Reference no: EM133336652

Question: Original question with correct answer:

Armani raises the price of Italian jeans it sells in the US. How does this affect the GDP deflator?

Original Answer: No change. Armani jeans are not produced in US borders, so therefore GDP is not affected.

My question: I don't understand why the GDP is not affected, I thought this change would be reflected in the net exports of GDP. Shouldn't net exports decrease (exports - imports) by the new import price of jeans as compared to the old which would mean GDP deflator decreases? Why doesn't it?

Reference no: EM133336652

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