Q. With reference to the GDP Deflator, consider the following statements:
1.The GDP deflator includes both final goods and imports while measuring price changes in the economy.
2.A rise in the GDP deflator indicates an increase in the overall price level in the economy.
3.Real GDP is always higher than Nominal GDP in times of high inflation.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
- The GDP deflator includes the value of final goods including exports but excludes imports, because imports are not produced domestically.
- A higher GDP deflator implies that prices have increased compared to the base year → it’s a measure of inflation.
- During inflation, Nominal GDP > Real GDP (because Nominal includes inflation, Real removes it).
Source: Laxmikant (Polity)
