What is the GDP deflator, and what does it measure?

By Ritesh|Updated : September 1st, 2022

GDP Deflator measures inflation, the ratio of the value of goods and services produced by an economy in a given year at current prices, to that of prices in the base year. It is determined by multiplying by 100 and dividing the nominal GDP by the real GDP.

Overview and How to Calculate GDP Deflator

  • An inflation gauge is the GDP deflator, often known as the implicit price deflator.
  • It is the difference between the value of goods and services an economy produces in a given year at the going rate and the going rate in the base year.
  • This ratio demonstrates the degree to which rising prices rather than increased output is to blame for the rise in the gross domestic product.
  • As opposed to the constrained commodity baskets for the wholesale or consumer price indices, the deflator includes the full spectrum of commodities and services generated in the economy, making it a more accurate indicator of inflation.
  • The GDP price deflator measures the difference between real and nominal GDP.
  • Real GDP differs from nominal GDP because the latter does not account for inflation.

Summary:

What is the GDP deflator, and what does it measure?

GDP Deflator is the ratio of a country's economy's value of goods and services generated in a particular year at current prices to base year prices. It is calculated by multiplying the nominal GDP by 100 and dividing it by the real GDP.

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