GDP Deflator

Correct answer: A. Nominal GDP and Real GDP

Explanation: The GDP deflator is a broad price index for domestically produced final goods and services. It is calculated as GDP deflator = (Nominal GDP / Real GDP) × 100. Therefore, it expresses the relationship between nominal GDP, valued at current prices, and real GDP, valued at base-year prices. Changes in the deflator indicate changes in the overall price level of domestic output.

Correct answer: A. GDP deflator = (Nominal GDP / Real GDP) × 100

Explanation: The general formula for the GDP deflator is: GDP deflator = (Nominal GDP / Real GDP) × 100. Nominal GDP is placed in the numerator because it values current output at current prices, while real GDP in the denominator values the same output at base-year prices. The ratio therefore captures the overall price-level change. NFIA and depreciation are used in other national-income adjustments, not in this formula.

Correct answer: A. 110

Explanation: The GDP deflator measures the overall price level of domestically produced final goods and services. It is calculated as (Nominal GDP ÷ Real GDP) × 100. Therefore, (₹1100 ÷ ₹1000) × 100 = 110. A value of 110 means that the current price level is 10% higher than the base-year price level.

Correct answer: A. Price-level indicator

Explanation: The GDP deflator is a broad price-level indicator for domestically produced final goods and services. It is calculated as GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Since nominal GDP uses current prices and real GDP uses constant prices, the ratio reflects the overall price change in the economy’s current production. Therefore, option A is correct.

Correct answer: A. Nominal GDP

Explanation: The GDP deflator is calculated using the formula: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Therefore, nominal GDP appears in the numerator and real GDP appears in the denominator. Nominal GDP reflects current-price valuation, while real GDP uses constant prices; their ratio measures the price-level effect. Hence, option A is correct.

Correct answer: A. 125

Explanation: Use the GDP-deflator formula: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹1500 ÷ ₹1200) × 100 = 1.25 × 100 = 125. Thus, the GDP deflator is 125, meaning that the current-price level is 25% above the base-year price level represented by the real-GDP measure. Option A is correct.

Correct answer: A. Price level

Explanation: The GDP deflator is a broad price index that measures the average price level of all final goods and services included in domestically produced GDP. It is calculated as GDP deflator = (Nominal GDP ÷ Real GDP) × 100. A rise in the deflator generally indicates that prices have increased relative to the base year; it does not directly measure population or depreciation.

Correct answer: A. GDP deflator = (Nominal GDP ÷ Real GDP) × 100

Explanation: The GDP deflator measures the price level of all domestically produced final goods and services relative to a base year. Its formula is (Nominal GDP ÷ Real GDP) × 100. Nominal GDP uses current prices, whereas real GDP uses base-year prices. Therefore, option A is correct; reversing the numerator and denominator would give an incorrect index.

Correct answer: B. 120

Explanation: The GDP deflator measures the general price level of domestically produced final goods and services. Its formula is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Therefore, (₹3600 ÷ ₹3000) × 100 = 1.2 × 100 = 120. Thus option B is correct, and the value indicates prices are 20% above the real-GDP base level.

Correct answer: A. Current prices are higher than base-year prices

Explanation: The GDP deflator is calculated as nominal GDP divided by real GDP, multiplied by 100. A value of 140 means that, for the goods and services included in GDP, the current-period price level is about 40% higher than the price level in the base year, subject to the index’s coverage and measurement. It says nothing directly about real output, trade balance, or whether goods are intermediate.

Correct answer: C. 4000

Explanation: The GDP deflator is calculated as (Nominal GDP divided by Real GDP) multiplied by 100. Rearranging gives Nominal GDP = (GDP deflator × Real GDP) divided by 100. Therefore, nominal GDP = (125 × 3200) ÷ 100 = 4000. Since the deflator is above 100, the current price level is higher than the base-year level.

Correct answer: B. GDP Deflator = (Nominal GDP ÷ Real GDP) × 100

Explanation: The GDP deflator measures the overall price level of domestically produced final goods and services relative to the base year. Its formula is GDP deflator = (Nominal GDP ÷ Real GDP) × 100, so option B is correct. Real GDP removes price changes, while nominal GDP includes current prices. Option A reverses the ratio, and options C and D are not valid index formulas.

Correct answer: C. 110

Explanation: Use the GDP deflator formula: (Nominal GDP ÷ Real GDP) × 100. Substituting the values gives (₹5,500 crore ÷ ₹5,000 crore) × 100 = 1.1 × 100 = 110. Therefore, option C is correct. A value of 110 indicates that the relevant price level is 10% above the base-year level; 100 would indicate equality, not the stated figures.

Correct answer: C. Both will be equal

Explanation: The deflator formula is (Nominal GDP ÷ Real GDP) × 100. If the deflator equals 100, then Nominal GDP ÷ Real GDP = 1, which means nominal GDP and real GDP are equal. This commonly occurs in the base year. Values above 100 imply nominal GDP is higher, while values below 100 imply it is lower, so option C is correct.

Correct answer: B. 20 percent

Explanation: A GDP deflator of 100 represents the base-year price level. A deflator of 120 therefore represents 120% of that level. The increase is 120 − 100 = 20 percentage points, or 20% above the base year. Hence option B is correct. It is not a 120% increase; 120 is the index value, not the percentage rise.

Correct answer: B. It is 10 percent lower than the base year

Explanation: The base-year deflator is 100. A deflator of 90 means the current general price level is 90% of the base-year level. Thus, the difference is 100 − 90 = 10%, so prices are 10% lower than in the base year. Option B is correct; 90 is the index level, not a 90% increase.

Correct answer: C. ₹10,000 crore

Explanation: Since GDP deflator = (Nominal GDP ÷ Real GDP) × 100, rearrange the formula: Nominal GDP = (Deflator × Real GDP) ÷ 100. Thus, nominal GDP = (125 × ₹8,000 crore) ÷ 100 = ₹10,000 crore. Therefore, option C is correct. The deflator above 100 raises nominal GDP above real GDP because current prices exceed base-year prices.

Correct answer: B. ₹8,000 crore

Explanation: Start with GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Solving for real GDP gives Real GDP = (Nominal GDP × 100) ÷ Deflator. Substitution gives (₹9,600 crore × 100) ÷ 120 = ₹8,000 crore. Therefore, option B is correct. Dividing nominal GDP by the price index removes the effect of current prices.

Correct answer: A. Current price level is above the base year

Explanation: The GDP deflator is calculated as nominal GDP divided by real GDP, multiplied by 100. If nominal GDP is greater than real GDP, this ratio is above 1 and the deflator is above 100. In the usual interpretation, current prices are therefore higher than base-year prices. The comparison says nothing by itself about zero output or a fall in population.

Correct answer: B. Price level is below the base year

Explanation: Using the formula GDP deflator = (nominal GDP ÷ real GDP) × 100, real GDP being greater than nominal GDP makes the ratio less than 1 and the deflator less than 100. This generally means the current price level is below the base-year price level. Equal values would imply a deflator of 100, while the comparison does not imply zero production.

Correct answer: C. 120

Explanation: The governing concept is the GDP deflator, which measures the price level of domestically produced final goods relative to the base year. Use the formula: GDP deflator = (nominal GDP ÷ real GDP) × 100 = (₹3,000 ÷ ₹2,500) × 100 = 120. Thus, option C is correct. A value of 120 indicates that the measured price level is 20% above the base-year level.

Correct answer: B. 10 percent

Explanation: The governing concept is the GDP deflator, calculated as nominal GDP divided by real GDP, multiplied by 100. GDP deflator = (₹13,200 ÷ ₹12,000) × 100 = 110. A deflator of 110 means the current price level is 110% of the base-year level, or 10% higher than it. Therefore, option B is correct; the other percentages do not follow from the ratio.

Correct answer: B. 90

Explanation: Use the GDP-deflator formula: GDP deflator = (nominal GDP ÷ real GDP) × 100. Substituting the given values gives (₹7,650 ÷ ₹8,500) × 100 = 0.9 × 100 = 90. Therefore, option B is correct. A deflator of 90 means the current price level is 90% of the base-year level, or 10% below it; 100 would indicate equal price levels.

Correct answer: A. Price index

Explanation: The GDP deflator is a broad price index that measures the average price level of all final goods and services produced domestically relative to the base year. It is calculated as Nominal GDP divided by Real GDP, multiplied by 100. Hence option A is correct; the other choices measure quantities or social and labour-market variables, not prices.

Correct answer: C. 100

Explanation: The GDP deflator is calculated as Nominal GDP ÷ Real GDP × 100. In the base year, the prices used for nominal valuation and constant-price valuation are the same, so nominal GDP equals real GDP. The ratio is therefore 1, or 100 after multiplying by 100. Hence option C is correct; 0, 50, and 200 do not represent the base index value.