Q. Consider the following statements regarding “GDP Deflator”:
1.It is the ratio between GDP at Current Prices and GDP at Constant Prices.
2.If GDP deflator is found to be 1, it implies a drop in price levels.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: A
Notes:

Explanation: GDP Deflator is the ratio between GDP at Current Prices and GDP at Constant Prices.

  • If GDP at Current Prices is equal to the GDP at Constant Prices, GDP deflator will be 1, implying no change in price level.
  • If GDP deflator is found to be 2, it implies rise in price level by a factor of 2, and if GDP deflator is found to be 4, it implies a rise in price level by a factor of 4.

Source: Ramesh Singh

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