GDP Deflator

Correct answer: A. Price effect

Explanation: A deflator separates changes in the value of output into price and quantity components. If the measured quantity of government services is unchanged but their cost rises, the observed change is a price effect, not real-output growth. Therefore option A is correct. A quantity effect would require more measured services, while population and import effects do not describe the stated change in service cost.

Correct answer: B. The old artwork's price has no direct effect

Explanation: The GDP deflator is based on the prices of currently produced final goods and services, calculated as nominal GDP divided by real GDP, multiplied by 100. An old artwork is an existing asset, so its resale price is not counted as new current production. If the auction-service fee is unchanged, that service price also creates no direct change. Therefore, the artwork’s price alone has no direct effect, making option B correct.

Correct answer: A. Their methods and time periods should be comparable

Explanation: A meaningful comparison of deflator growth requires comparable index construction and the same or equivalent time periods. Countries may use different coverage rules, classifications, base-year practices, or revision methods; such differences can distort the measured rate. Equal population, identical currencies, and equal nominal GDP are not necessary conditions. Therefore, option A correctly identifies the essential comparability requirement.

Correct answer: C. 126

Explanation: The GDP deflator is calculated as (Nominal GDP / Real GDP) × 100. Substituting the given values gives (₹4,032 crore / ₹3,200 crore) × 100 = 1.26 × 100 = 126. The common unit, crore, cancels during division, so no further conversion is needed. Therefore, option C is correct. The other values result from using an incorrect ratio or arithmetic.