Question

Consider the following statements related to the GDP Deflator:

A. GDP deflator is a measure of the rate of inflation in the economy.
B. It is the ratio of GDP at current prices to GDP at constant prices.
C. Nominal GDP is equal to real GDP in the base year.
D. The GDP deflator is used to convert nominal variables into real variables.

Which of the statements given above are correct?

1. A and B only
2. B and C only
3. C and D only
4. All the above

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Answer:
4. All the above

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Explanation:

1. A. GDP deflator is a measure of the rate of inflation in the economy:

   • The GDP deflator reflects the changes in price levels across an economy and is used to measure inflation.

2. B. It is the ratio of GDP at current prices to GDP at constant prices:

   • The GDP deflator is calculated as:
     GDP Deflator = (Nominal GDP / Real GDP) × 100

3. C. Nominal GDP is equal to real GDP in the base year:

   • In the base year, price levels are considered constant, making nominal GDP equal to real GDP.

4. D. The GDP deflator is used to convert nominal variables into real variables:

   • The GDP deflator adjusts nominal GDP to real GDP by accounting for changes in price levels.

Source:

• Reserve Bank of India (RBI)
• Ministry of Statistics and Programme Implementation (MOSPI)