Q. With reference to the GDP Deflator, consider the following statements:
1.It is a better measure of price behavior than other indices because it covers all goods and services produced in the country.
2.If the GDP Deflator is less than 1, it implies a rise in the general price level.
3.The GDP Deflator is calculated as the ratio of GDP at Constant Prices to GDP at Current Prices.
Which of the statements given above are correct?
Answer: A
Notes:
Explanation:
Statement 1 is correct; the GDP Deflator is considered a better measure of price behavior because it covers all goods and services produced in the country. It covers all goods/services, making it better than WPI, which doesn’t equitably account for services.
Statement 2 is incorrect; if the deflator is less than 1, it implies a fall in the price level.
Statement 3 is incorrect; the GDP Deflator is the ratio of GDP at Current Prices and GDP at Constant Prices, not the other way around. GDP Deflator = GDP current / GDP constant, showing price behavior.
