Q. Which of the following statements about GDP Deflator is/are not correct?
1. It represents the ratio of GDP at current prices to GDP at constant prices.
2. It covers only fixed basket of goods and services.
Select the correct answer using the codes given below:
Answer: B
Notes:
GDP Deflator
- It is a tool to measure inflation comprehensively.
- It represents the ratio of GDP at current prices to GDP at constant prices. The GDP deflator is published on a quarterly basis since 1996 with a lag of two months.
- It is because of this very reason that economists prefer the use of the Wholesale Price Index (WPI) or Consumer Price Index (CPI) for deflating nominal price estimates to derive real price estimates.
- GDP deflator = (Nominal GDP/Real GDP) * 100 (if calculated in a percentage form).
- Unlike the WPI and the CPI, GDP deflator is not based on a fixed basket of goods and services, it covers the whole economy.
- It does not include the prices of imported goods.
- The weights are constant in CPI, but they differ according to the production level of each good in GDP deflator.
Source: NCERT
