The value of Nominal GNP of an economy was Rs. 2500 crores in a particular year. The value of GNP of that country during the same year evaluated at base year prices was Rs. 3000 crores.

(a) Calculate the value of GNP deflator in percentage terms.

(b) What does it indicate?

(c) What is the possible reason for such a situation?

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Solution

(a) GNP deflator = Nominal GNP/Real GNP $\times$ 100
$= \frac{2500}{3000} \times 100 = 83.333 %$

(b) It indicates a fall in prices from base year to current year by 16.66%.

(c) One of the possible reasons is the fall in the money supply due to the credit control measures taken by Central Bank or commercial banks.

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(a) GNP deflator = Nominal GNP/Real GNP × 100 =25003000×100=83.333% (b) It indicates a fall in prices from base year to current year by 16.66%. (c) One of the possible reasons is the fall in the money supply due to the credit control measures taken by Central Bank or commercial banks.