The GDP deflator is calculated as:
- A.Real GDP divided by nominal GDP, multiplied by 100
- B.Nominal GDP divided by real GDP, multiplied by 100
- C.Nominal GDP minus real GDP
- D.GDP at factor cost divided by population
Correct answer
Explanation
The correct answer is B, nominal GDP divided by real GDP, multiplied by 100. Nominal GDP is measured at current prices and real GDP at the prices of a base year, so the ratio between them isolates the effect of the change in prices. The deflator is the broadest price measure available, because it covers every good and service produced within the country, and unlike the wholesale and consumer indices its basket changes as the composition of output changes.
Option A inverts the formula and would fall when prices rise. Option C gives an absolute difference in rupees, not an index number. Option D describes per capita GDP, which measures income per head and has nothing to do with the measurement of prices. A deflator of 120 means that prices in the current year are twenty per cent above the base year level.
Read the full article: Inflation and Price Indices: WPI, CPI and Exam Notes
Practice Questions
View allWhich index does the Reserve Bank of India use to measure inflation for its inflation targeting framework?
- A.Wholesale Price Index
- B.Consumer Price Index (Combined)
- C.Index of Industrial Production
- D.GDP deflator
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When the flexible inflation targeting framework was adopted after the amendment of the Reserve Bank of India Act in 2016, the combined rural and urban consumer price index released by the National Statistical Office was made the nominal anchor, as the Urjit Patel Committee had recommended.
Read the full explanation →The Wholesale Price Index in India is compiled and released by which body?
- A.The Reserve Bank of India
- B.The Labour Bureau
- C.The Office of the Economic Adviser
- D.The National Statistical Office
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The wholesale price index is compiled and released every month by the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce and Industry.
Read the full explanation →Inflation that is caused by aggregate demand rising faster than the supply of goods and services is called:
- A.Cost-push inflation
- B.Demand-pull inflation
- C.Structural inflation
- D.Imported inflation
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It is described in the classic phrase as too much money chasing too few goods.
Read the full explanation →A situation of high inflation along with stagnant growth and high unemployment is known as:
- A.Reflation
- B.Disinflation
- C.Stagflation
- D.Deflation
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The word joins stagnation and inflation, and it describes the awkward situation in which prices are rising fast while output is flat and unemployment is high.
Read the full explanation →During a period of high inflation, which of the following groups usually gains?
- A.Borrowers
- B.Lenders
- C.Pensioners
- D.Holders of fixed deposits
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A loan is repaid in a fixed number of rupees, and inflation reduces what those rupees can buy. The borrower therefore returns money of smaller real value than the money received, so the real burden of the debt falls.
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