|Consider the following statements about GDP deflator.|
|1. GDP deflator tells us the rise in nominal GDP that is attributable to a rise in prices rather than a rise in the quantities produced.|
|2. GDP deflator does not depend on a fixed basket of goods and services but covers the level of prices of an entire range of economic activities.|
|Select the correct answer using the codes given below:|
A) 1 only
B) 2 only
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: C
Solution :[c] The GDP deflator, also called implicit price deflator, is a measure of inflation. Simply put, it is the ratio of the value of goods and services an economy produces in a particular year at current prices to that at prices prevailing during any other reference (base) year. This ratio basically shows to what extent an increase in GDP or gross value added (GVA) in an economy has happened on account of higher prices, rather than increased output. Since the deflator covers the entire range of goods and services produced in the economy- as against the limited commodity baskets for the wholesale or consumer price indices - it is seen as a more comprehensive measure of inflation.
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