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Question
Q. Consider the following statements in reference to the GDP deflator.
Which of the statements given above is/are correct?
Q. Consider the following statements in reference to the GDP deflator.
Which of the statements given above is/are correct?Open in App
Solution
The correct option is A 1 only
Explanation:
Statement 1 is correct: GDP deflator is the ratio of the value of goods and services an economy produces in a particular year at current prices (Nominal GDP) to that of prices that prevailed during the base year( Real GDP). Hence the changes in consumption patterns or introduction of new goods and services are automatically reflected in the GDP deflator.
Statement 2 is incorrect: GDP deflator includes only those goods produced domestically. Imported goods are not part of GDP and hence do not show up in the GDP deflator. Thus, the GDP deflator includes the prices of investment goods, government services, and exports, and excludes the price of imports.
Explanation:
Statement 1 is correct: GDP deflator is the ratio of the value of goods and services an economy produces in a particular year at current prices (Nominal GDP) to that of prices that prevailed during the base year( Real GDP). Hence the changes in consumption patterns or introduction of new goods and services are automatically reflected in the GDP deflator.
Statement 2 is incorrect: GDP deflator includes only those goods produced domestically. Imported goods are not part of GDP and hence do not show up in the GDP deflator. Thus, the GDP deflator includes the prices of investment goods, government services, and exports, and excludes the price of imports.
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