GDP deflator is an economic metric that converts output measured at current prices into constant-dollar GDP. It reflects the level of prices of all new, domestically produced, final goods and services in an economy.
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GDP deflator is calculated as (Nominal GDP/Real GDP) * 100.
It measures price inflation or deflation with respect to a specific base year.
Unlike the Consumer Price Index (CPI), the GDP deflator includes all goods and services produced domestically.
A rising GDP deflator indicates increasing prices, signaling inflation.
It adjusts nominal GDP to reflect changes in price levels.
Review Questions
How is the GDP deflator calculated?
What does a rising GDP deflator signify about an economy?
How does the GDP deflator differ from the Consumer Price Index (CPI)?
Related terms
Nominal GDP: The market value of all finished goods and services produced within a country in a specific period, measured using current prices.
Real GDP: The market value of all finished goods and services produced within a country in a specific period, adjusted for inflation.
Consumer Price Index (CPI): A measure that examines the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.