The gross domestic product price deflator evaluates the differences in costs of entire goods and services manufactured in an economy. GDP indicates the total production of goods and services.
However, when GDP falls and rises, the metric does not acknowledge the impact of rising prices or inflation. The GDP deflator displays the various range of price changes on GDP by first initiating a base year and then relating the present rate to the prices of the base year.
There are important MCQs given on GDP deflator to analyse your understanding of the topic. The answers are also given for your reference.
GDP Deflator MCQs
Q.1 What was the inflation percentage between 2000 and 2001?
Q.2 What was the estimated real GDP percentage change between 2000 and 2002?
Q.3 What is the function of the GDP deflator?
A) It evaluates inflation by utilising the present production basket.
B) It shows real GDP growth on the basis of current production.
C) The GDP deflator is in real terms while the CPI is in nominal terms.
D) None of the above
Q.4 What does an increase in aggregate demand result in?
A) The cost to increase in the long term
B) GDP to increase in the long term
C) The cost to increase in the short term
D) GDP to increase in the short term
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