GDP Deflator

Correct answer: B. 15 percent

Explanation: Inflation is the percentage change relative to the initial price index, not merely the point difference. The index increases by 151.8 − 132 = 19.8 points. Hence, inflation = (19.8 ÷ 132) × 100 = 15 percent. Option B is correct. The value 19.8 is the index-point increase, while 12 and 18 do not follow from the required percentage calculation.

Correct answer: C. 16 percent

Explanation: The percentage decline is measured relative to the initial deflator. The fall is 175 − 147 = 28 index points. Therefore, the percentage decline is (28 ÷ 175) × 100 = 16 percent. Option C is correct. The value 28 represents the absolute index-point fall, not the percentage fall; using the final value as the denominator would also be incorrect.

Correct answer: B. 10.91 percent

Explanation: Because the deflator equals nominal GDP divided by real GDP, its growth factor is the nominal GDP factor divided by the real GDP factor. Thus, deflator growth = (1.22 ÷ 1.10 − 1) × 100 = 10.909..., or approximately 10.91 percent. Option B is correct. Simply subtracting 10 from 22 gives only a rough approximation, not the exact growth rate.

Correct answer: B. 7.37 percent fall

Explanation: The GDP deflator equals nominal GDP divided by real GDP, multiplied by 100. For the change, use the growth factors: nominal GDP becomes 0.88 of its initial value and real GDP becomes 0.95. Thus the deflator factor is 0.88/0.95 = 0.9263. It therefore falls by (1 − 0.9263) × 100 ≈ 7.37%. Hence option B is correct; 7% is only a rough subtraction, while 17% incorrectly adds the falls.

Correct answer: A. 5.08 percent fall

Explanation: The deflator compares nominal GDP with real GDP, so its change must be found from the ratio of their growth factors, not by simply subtracting 18% and 12%. The new ratio is 1.12/1.18 = 0.94915. Therefore the deflator decreases by (1 − 0.94915) × 100 ≈ 5.08%. Option A is correct; 6% is an incorrect simple difference and the positive options ignore that real GDP grows faster.

Correct answer: B. 50 percent

Explanation: The GDP deflator is proportional to nominal GDP divided by real GDP. Assume both initial values are 100. After the changes, nominal GDP is 180 and real GDP is 120, so the deflator changes by 180/120 = 1.5 times. A factor of 1.5 means a 50% increase. Thus option B is correct. Subtracting 20 from 80 gives 60%, but that ignores the ratio-based nature of the deflator.

Correct answer: B. 20 percent

Explanation: Because the deflator equals nominal GDP divided by real GDP, use the remaining fractions after the falls. Nominal GDP becomes 0.90 of its original value, while real GDP becomes 0.75. The deflator factor is therefore 0.90/0.75 = 1.20. This means a growth rate of (1.20 − 1) × 100 = 20%. Option B is correct; the 15% option merely subtracts the stated declines.

Correct answer: B. 23.08 percent

Explanation: The deflator is nominal GDP divided by real GDP. Let the initial values of both be 100. Nominal GDP stays at 100, while real GDP becomes 130. The new deflator relative to the old one is 100/130 = 0.76923. Hence the percentage fall is (1 − 0.76923) × 100 ≈ 23.08%. Option B is correct; 30% is the rise in real GDP, not the proportional fall in the ratio.

Correct answer: A. 18 points and 12.5 percent

Explanation: The index-point rise is found by subtraction: 162 − 144 = 18 points. The inflation rate compares this change with the starting index, so it is (18/144) × 100 = 12.5%. Therefore option A is correct. Option C confuses the point increase with the percentage rate, while option B reverses them; the base year value of 144 must be used for the rate.

Correct answer: C. 131.43

Explanation: For any year, the GDP deflator is calculated as (nominal GDP/real GDP) × 100. The question asks for the new year, so use ₹2760 crore and ₹2100 crore, not the previous-year values. The calculation is (2760/2100) × 100 = 131.428..., which rounds to 131.43. Therefore option C is correct; the other values result from using an incorrect denominator or an inaccurate ratio.

Correct answer: B. 9.53 percent

Explanation: Inflation is the percentage increase relative to the initial index, not merely the index-point difference. The change is 131.43 − 120 = 11.43 points. Divide by the initial deflator and multiply by 100: (11.43/120) × 100 = 9.525%, approximately 9.53%. Option B is correct. The value 11.43 is only the point change, while 8.57 and 20 do not use the correct base.

Correct answer: D. 142.86

Explanation: First calculate real GDP: 70% of ₹2800 crore is 0.70 × 2800 = ₹1960 crore. The GDP deflator formula is (nominal GDP/real GDP) × 100. Thus the deflator is (2800/1960) × 100 = 142.857..., approximately 142.86. Option D is correct. The value 70 is only the real-to-nominal ratio, and 140 is an imprecise result from failing to complete the division.

Correct answer: B. 71.43

Explanation: If real GDP is 40% higher than nominal GDP, then real GDP equals 1.40 times nominal GDP. Let nominal GDP be 100; real GDP is therefore 140. Applying the formula, the deflator is (100/140) × 100 = 71.428..., approximately 71.43. Option B is correct. The value 140 is the real-GDP index relative to nominal GDP, while 100 incorrectly assumes equality and 60 uses an unjustified subtraction.

Correct answer: A. Because the deflator is based on final domestic output

Explanation: National accounts avoid double counting by excluding the separate resale value of intermediate goods from final output. Their contribution is captured through value added and the price of the resulting final domestic product. Therefore, an intermediate-input price rise affects the GDP deflator directly only if it is reflected in the value or price of final output. Option A states this principle; B, C and D contradict national-income accounting.

Correct answer: A. They may use an appropriate price estimate or quality adjustment

Explanation: A new technology good may not have an observed price in the selected base year, creating a measurement problem when real output and price changes are estimated. Statistical agencies can use a suitable imputed price, comparable-product information, hedonic methods, or quality adjustment to construct a reasonable estimate. Hence option A is correct. Permanent exclusion, a zero price, or abolishing nominal GDP would distort rather than solve measurement.

Correct answer: B. Country B

Explanation: The governing concept is the GDP-deflator conversion: Real GDP = (Nominal GDP ÷ GDP deflator) × 100. For Country A, real GDP = (3600 ÷ 160) × 100 = ₹2250 crore. For Country B, it is (3300 ÷ 110) × 100 = ₹3000 crore. Hence Country B has the higher real GDP, so option B is correct. Option A ignores the price-level difference.

Correct answer: A. The first will have higher real GDP

Explanation: Real GDP is calculated as (Nominal GDP ÷ GDP deflator) × 100. When both economies have the same positive deflator, the denominator is identical, so real GDP changes in the same direction and proportion as nominal GDP. Since the first economy has the larger nominal GDP, its real GDP must also be larger. Therefore option A is correct; equal real GDP would require equal nominal GDP under the same deflator.

Correct answer: A. The first will have lower real GDP

Explanation: The relevant relation is Real GDP = (Nominal GDP ÷ GDP deflator) × 100. Because nominal GDP is equal in both economies, the economy with the larger deflator has the larger denominator and therefore the smaller real GDP. A 25 percent higher deflator lowers the first economy’s real GDP relative to the second, although it does not make it zero. Thus option A is correct.

Correct answer: A. 5.22 percent fall

Explanation: Real GDP equals nominal GDP divided by the deflator, so percentage changes must be converted into index multipliers. The new real-GDP ratio is 1.09 ÷ 1.15 = 0.947826..., meaning real GDP becomes about 94.78 percent of its original level. The change is therefore 0.947826 − 1 = −0.052174, or an approximate 5.22 percent fall. Option A is correct.

Correct answer: C. 9.33 percent

Explanation: Use Real GDP = Nominal GDP ÷ GDP deflator. After the changes, nominal GDP has a multiplier of 0.82 and the deflator has a multiplier of 0.75. Thus the real-GDP multiplier is 0.82 ÷ 0.75 = 1.093333.... Real GDP therefore increases by (1.093333 − 1) × 100 ≈ 9.33 percent. Option C is correct; subtracting 18 from 25 would not give the exact result.

Correct answer: B. 16.63 percent

Explanation: The identity is Nominal GDP = Real GDP × GDP deflator, so the growth factors must be multiplied rather than added. Real GDP has a factor of 1.07 and the deflator has a factor of 1.09. Their product is 1.07 × 1.09 = 1.1663. Therefore nominal GDP grows by (1.1663 − 1) × 100 = 16.63 percent. Option B is correct; 16 percent omits the interaction term.

Correct answer: A. 1.2 percent rise

Explanation: Nominal GDP is the product of real GDP and the GDP deflator. A 12 percent fall gives a factor of 0.88, while a 15 percent rise gives a factor of 1.15. Multiplying them yields 0.88 × 1.15 = 1.012. Thus nominal GDP becomes 101.2 percent of its original value and rises by exactly 1.2 percent. Option A is correct; subtracting 12 from 15 would incorrectly ignore compounding.

Correct answer: A. 5 percent rise

Explanation: Nominal GDP equals real GDP multiplied by the GDP deflator. The 40 percent rise in real GDP gives a factor of 1.40, and the 25 percent fall in the deflator gives a factor of 0.75. Their product is 1.40 × 0.75 = 1.05. Therefore nominal GDP is 105 percent of its initial value and rises by 5 percent. Option A is correct; adding 40 and −25 would also happen to give 15, but that is not the correct multiplicative method.

Correct answer: A. It remains unchanged

Explanation: The governing identity is Nominal GDP = Real GDP × GDP deflator. A 20 percent fall in real GDP gives a multiplier of 0.80, and a 25 percent rise in the deflator gives a multiplier of 1.25. Their product is 0.80 × 1.25 = 1.00, so nominal GDP remains exactly unchanged. Option A is correct. A 5 percent result would come from incorrectly adding or subtracting the two percentage changes.

Correct answer: C. 28 percent

Explanation: Because Real GDP = Nominal GDP ÷ GDP deflator, use growth multipliers rather than subtracting percentages directly. The nominal GDP multiplier is 1.60 and the deflator multiplier is 1.25. Hence the real-GDP multiplier is 1.60 ÷ 1.25 = 1.28. Real GDP therefore grows by (1.28 − 1) × 100 = 28 percent. Option C is correct; the 35 percent figure incorrectly subtracts 25 from 60.