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Question

what is the difference between GDP DEFLATOR AND GNP deflator?

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Solution

If asked on calculation level the difference between GNP and GDp deflator is simply the formulae used to calculate the two.

GDP Deflator = (Nominal GDP/Real GDP) x 100

GNP deflator = (Nominal GNP/Real GNP) x 100

The difference between the two measures is only that the former involves GDP but the later involves GNP. Overall,GNP and GDP deflator acts as a price level indicator for an economy. These are better estimates than CPI as they include all the final goods and services produced within the country (for GDP deflator) or produced by the citizens of a country(for GNP deflator).The second use of these indicators arise while changing nominal output levels to real outputs.


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