If the value of nominal GDP is ₹5500 and of real GDP is ₹2200, what is the value of GDP Deflator?

The correct option is ' 2.5'.

Key Points

• The GDP Deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
• GDP Deflator can be calculated using the formula: (Nominal GDP / Real GDP) * 100.
• In this case, the Nominal GDP is ₹5500 and the Real GDP is ₹2200.
• Using the formula: (5500 / 2200) * 100 = 250.
• The GDP Deflator is thus 250, which, when expressed as an index, is usually divided by 100, giving us a value of 2.5.
• This indicates that the level of prices has increased by 150% over the base year (the year used for comparison).
• The GDP Deflator helps in distinguishing between changes in real GDP (which reflect changes in the quantity of goods and services produced) from changes in nominal GDP (which can also result from changes in prices).

Additional Information

• The GDP Deflator is considered a more comprehensive measure of inflation than the Consumer Price Index (CPI) or the Wholesale Price Index (WPI), as it is not based on a fixed basket of goods and services.
• By comparing the GDP Deflator over different periods, economists can understand inflation trends and the real growth of an economy.