GDP Deflator

Correct answer: C. 120

Explanation: The GDP deflator measures the overall price level by comparing nominal GDP with real GDP: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Substituting the values gives (18,000 ÷ 15,000) × 100 = 1.2 × 100 = 120. Therefore, option C is correct. A deflator of 120 means that the current price level is 20% higher than the base-year price level; the other values result from incorrect division or multiplication.

Correct answer: C. 120

Explanation: The GDP deflator measures the overall price level of domestically produced final goods relative to the base year. Its formula is (Nominal GDP ÷ Real GDP) × 100. Therefore, (₹1,200 crore ÷ ₹1,000 crore) × 100 = 120. Option C is correct. A value of 120 indicates that the relevant price level is 20% above the base-year level of 100; it is not a measure of output alone.

Correct answer: B. Price level is 10 percent above the base year

Explanation: The GDP deflator compares the current overall price level with the base-year price level, which is represented by 100. A deflator of 110 means prices are 110% of the base-year level, or 10% higher than it. Therefore option B is correct. It does not mean that output increased by 110%, and it gives no basis for saying that real GDP is zero. A value below 100 would indicate a lower price level.

Correct answer: B. General price level

Explanation: The GDP deflator measures the overall price level of all domestically produced final goods and services relative to a base year. It is calculated as nominal GDP divided by real GDP, multiplied by 100. Thus, it captures price changes in domestic output, whereas real GDP focuses on quantities. Population growth and unemployment are separate economic indicators, and quantity alone is not what the deflator measures. Therefore, option B is correct.

Correct answer: C. 110

Explanation: The GDP deflator is calculated by the formula: (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹6,600 crore ÷ ₹6,000 crore) × 100 = 1.1 × 100 = 110. A value of 110 means that the current price level is 10% higher than the base-year level. The other options result from using the wrong ratio or skipping the multiplication by 100. Therefore, option C is correct.

Correct answer: C. 120

Explanation: Use the GDP-deflator formula: (Nominal GDP ÷ Real GDP) × 100. Here, (₹8,400 crore ÷ ₹7,000 crore) × 100 = 1.2 × 100 = 120. This indicates that the price level of current domestic output is 20% above the base-year level. Values such as 110 or 115 would not follow from the given ratio, while 125 is also mathematically incorrect. Hence, option C is correct.

Correct answer: B. 90

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. Applying the formula gives (₹9,000 crore ÷ ₹10,000 crore) × 100 = 0.9 × 100 = 90. A deflator of 90 means the measured price level is 10% below the base-year level. Option 100 would represent equal nominal and real GDP, while 80 and 110 do not match the calculation. Therefore, option B is correct.

Correct answer: C. 30 percent

Explanation: The GDP deflator is set at 100 in the base year. To find how much higher the current price level is, subtract the base value from the deflator: 130 − 100 = 30 percentage points. Thus, the price level is 30% higher than in the base year. It is not 130% higher; 130 is the index value, not the increase. Therefore, option C is correct.

Correct answer: B. 15 percent

Explanation: The GDP deflator equals 100 in the base year. When the deflator is 85, the price-level shortfall is calculated as 100 − 85 = 15 percentage points. Therefore, the current price level is 15% lower than the base-year level. The value 85 is the index number itself, not the amount of decline. Options 5 and 25 do not represent the difference from the base value. Hence, option B is correct.

Correct answer: A. Increase in real output

Explanation: Real GDP values output at constant prices, so changes caused purely by inflation are removed. Consequently, an increase in real GDP generally indicates that the economy is producing a larger quantity of final goods and services, reflecting economic growth. It does not necessarily mean prices, taxes or money supply changed. Nominal GDP can rise because of prices alone, but real GDP is designed to isolate the output effect. Therefore, option A is correct.

Correct answer: C. Rise in both prices and output

Explanation: Nominal GDP measures the value of current production at current prices, so it is influenced by both quantities and prices. If either output or prices rise sufficiently, nominal GDP may increase; a rise in both will clearly increase it, assuming positive values. Real GDP removes the price effect, but nominal GDP does not. Population growth alone is not a direct component unless it raises measured output. Therefore, option C is the best answer.

Correct answer: A. Because nominal GDP and real GDP are equal

Explanation: The GDP deflator is calculated as: (Nominal GDP ÷ Real GDP) × 100. In the base year, nominal GDP and real GDP use the same prices and therefore have the same value. Their ratio is 1, and multiplying 1 by 100 gives a deflator of 100. This number does not mean that output is 100 units, that every price is ₹100, or that inflation is 100 percent.

Correct answer: A. Current prices are above base-year prices

Explanation: The GDP deflator compares the current price level with the base-year price level using the formula (Nominal GDP ÷ Real GDP) × 100. A value above 100 means that, on average, current prices are higher than base-year prices. It generally indicates inflation relative to the base year. It does not imply zero output or zero real GDP, and the opposite price relationship would produce a value below 100.

Correct answer: B. Current prices are below base-year prices

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100 and compares the current price level with the base-year level. If it is below 100, nominal GDP is lower relative to real GDP because current prices are, on average, below base-year prices. This indicates a lower price level, possibly deflation relative to the base year. It does not show that output or nominal GDP is zero.

Correct answer: A. It will rise

Explanation: The GDP deflator represents the price level relative to the base year, and the relationship is Nominal GDP = Real GDP × Deflator ÷ 100. If real GDP stays constant while the deflator rises, the price component becomes larger, so nominal GDP increases. Therefore, option A is correct; a fall or unchanged nominal value would contradict the given relationship.

Correct answer: C. 120

Explanation: The governing formula for the GDP price index or GDP deflator is (nominal GDP ÷ real GDP) × 100. Substituting the values gives (₹14,400 crore ÷ ₹12,000 crore) × 100 = 1.2 × 100 = 120. Hence option C is correct. Values such as 110, 115, or 125 do not result from the stated ratio and therefore are distractors.

Correct answer: B. 10 percent

Explanation: Use the GDP deflator to compare the current price level with the base-year level: (nominal GDP ÷ real GDP) × 100 = (16,200 ÷ 18,000) × 100 = 90. A price index of 90 means prices are 10% below the base-year level because 100 − 90 = 10. Therefore B is correct; the other percentages do not follow from the index.

Correct answer: C. ₹35,000 crore

Explanation: The GDP deflator formula is deflator = (nominal GDP ÷ real GDP) × 100. Rearranging gives nominal GDP = real GDP × deflator ÷ 100. Thus nominal GDP = ₹25,000 crore × 140 ÷ 100 = ₹35,000 crore. Option C is correct. A, B, and D come from using an incorrect multiplier or failing to apply the index base of 100.

Correct answer: B. ₹20,000 crore

Explanation: Starting with deflator = (nominal GDP ÷ real GDP) × 100, rearrange to real GDP = nominal GDP × 100 ÷ deflator. Therefore real GDP = ₹27,000 crore × 100 ÷ 135 = ₹20,000 crore. Option B is correct because dividing nominal output by the price index removes the price effect. The other values use an incorrect divisor or ratio.

Correct answer: A. Deflation adjustment

Explanation: Nominal GDP is measured at current prices, so it includes both changes in output and changes in prices. Converting it into real GDP requires removing the price-level effect with an appropriate deflator; this is called deflation adjustment. Thus option A is correct. Depreciation concerns loss of capital value, nationalisation concerns ownership, and capital formation concerns investment in assets.

Correct answer: C. 110 and 10 percent

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Substituting the values gives (₹22,000 ÷ ₹20,000) × 100 = 110. Since the base-year index is 100, a deflator of 110 means the overall price level is 10% higher than in the base year. Therefore option C is correct; the other pairs use incorrect ratios or interpretations.

Correct answer: B. 100

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Since both values are ₹2,000 crore, the ratio is 2,000 ÷ 2,000 = 1. Multiplying by 100 gives a deflator of 100, so option B is correct. A deflator of 100 means the measured price level equals the base-year price level. Values above or below 100 would indicate higher or lower prices, respectively.

Correct answer: C. 14 points

Explanation: An index-point change is found by subtracting the new index from the old index: 140 − 126 = 14 points. Therefore, option C is correct. This question asks for the absolute decline in index points, not the percentage decline. The percentage fall would be (14 ÷ 140) × 100 = 10%, which is different from the requested 14 points.

Correct answer: B. Nominal GDP

Explanation: The GDP deflator is calculated as (nominal GDP ÷ real GDP) × 100. Therefore nominal GDP appears in the numerator, making option B correct. Nominal GDP uses current prices, while real GDP at constant prices appears in the denominator. Population and depreciation are not components of this price-index formula, so they cannot be the numerator.

Correct answer: B. Real GDP

Explanation: The GDP deflator formula is (nominal GDP ÷ real GDP) × 100. Hence real GDP is placed in the denominator, and option B is correct. Nominal GDP is the numerator because it reflects current prices, whereas real GDP uses constant base-year prices. National income and a separate price index are not the denominator in this standard formula.