GDP Deflator is a measure of price inflation or deflation within an economy.It reflects how much prices have changed since a base year.
What is GDP Deflator – Indian Economy UPSC Notes GDP Deflator The GDP Deflator is a measure of inflation that reflects how much the prices of goods and services produced in an economy have changed compared to a base year. It helps us understand whether the increase in GDP is due to higher production or just higher prices. The GDP Deflator is a measure of price inflation or deflation within an economy. It reflects how much prices have changed since a base year and is used to convert Nominal GDP into Real GDP . GDP Deflator Formula GDP Deflator = ( Nominal GDP Real GDP ) × 100 \text{GDP Deflator} = \left( \frac{\text{Nominal GDP}}{\text{Real GDP}} \right) \times 100 Breaking it Down Nominal GDP: The GDP calculated using current year prices (includes inflation). Real GDP: The GDP calculated using base year prices (excludes inflation). The GDP Deflator shows how much prices have changed over time relative to the base year. Example: Bakery Shop Imagine a small bakery produces 100 cakes in both 2020 (base year) and 2025. Prices of Cakes: In 2020 (base year):…
