Question

State the meaning and significance of Gross Domestic Product (GDP) deflator.

Answer 1

The GDP deflator measures the difference between nominal GDP and real GDP, showing how much prices have risen or fallen in a country. It is an economic number that shows how much all new, finished goods and services made in the country cost.

The significance of Gross Domestic Product (GDP) deflator is as follows:

• Measures Inflation / Deflation
• Converts Nominal GDP to Real GDP
• Guides Economic Policy

Formula: GDP Deflator = `("Nominal GDP" / "Real GDP") xx 100`