GDP Deflator

Correct answer: C. 120

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (7,200 ÷ 6,000) × 100 = 1.2 × 100 = 120. Therefore, option C is correct. A deflator of 120 means the general price level is 20% higher than in the base year; 100 would indicate no price change.

Correct answer: B. 105

Explanation: The GDP deflator measures the price level represented by nominal GDP relative to real GDP. Use the formula (Nominal GDP ÷ Real GDP) × 100: (10,500 ÷ 10,000) × 100 = 1.05 × 100 = 105. Thus option B is correct. The value 105 indicates that prices are 5% above the base-year level, while 100 would mean prices are unchanged.

Correct answer: C. 95

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. Here, (11,400 ÷ 12,000) × 100 = 0.95 × 100 = 95, so option C is correct. Since the index is 95 rather than 100, the measured price level is 5% below the base-year level. The result is not 100 because nominal GDP is lower than real GDP.

Correct answer: B. ₹12,000 crore

Explanation: Using the deflator formula, Real GDP = (Nominal GDP ÷ GDP deflator) × 100. Substitution gives (₹15,000 crore ÷ 125) × 100 = ₹12,000 crore. Hence option B is correct. Real GDP removes the effect of current prices, so it is lower than nominal GDP when the deflator is above 100; options A, C and D do not satisfy the formula.

Correct answer: A. 8 percent

Explanation: A GDP deflator is an index in which the base-year price level is assigned a value of 100. With a deflator of 108, the difference from the base is 108 − 100 = 8 index points, meaning the price level is 8% higher than in the base year. Therefore option A is correct; 108 is the index value, not the percentage increase.

Correct answer: B. 8 percent

Explanation: The base-year value of a GDP deflator index is 100. A deflator of 92 is therefore 100 − 92 = 8 points below the base. This represents a price level 8% lower than the base year, so option B is correct. The answer is not 92%; 92 is the index reading, whereas the decline is measured relative to 100.

Correct answer: C. 110

Explanation: The GDP deflator is calculated as: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. The question states that nominal GDP is 110 percent of real GDP, so the ratio of nominal GDP to real GDP is 1.10. Multiplying this ratio by 100 gives 110. Therefore, option C is correct. A deflator of 100 would indicate equal nominal and real GDP, while 90 would indicate a lower nominal value.

Correct answer: A. 80

Explanation: The GDP deflator is obtained from the formula (Nominal GDP ÷ Real GDP) × 100. Here, nominal GDP equals 80 percent of real GDP, so Nominal GDP ÷ Real GDP = 0.80. Therefore, the deflator is 0.80 × 100 = 80. Option A is correct. A value of 100 would mean nominal and real GDP are equal, whereas values above 100 would indicate nominal GDP greater than real GDP at the relevant prices.

Correct answer: C. 120

Explanation: The GDP deflator formula is (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹5,400 ÷ ₹4,500) × 100 = 1.2 × 100 = 120. Therefore, option C is correct. The deflator of 120 indicates that the measured price level is 20 percent above the base-year level. Dividing in the reverse order would give an incorrect result.

Correct answer: A. It includes many final goods and services produced domestically

Explanation: The GDP deflator is calculated as nominal GDP divided by real GDP, multiplied by 100. Because GDP covers the prices of final goods and services produced within the domestic economy, the deflator reflects a wide and changing basket of domestic output rather than a narrow fixed basket. Hence option A is correct. Options B, C and D cover only limited categories and therefore cannot describe a broad GDP-wide index.

Correct answer: C. 150 percent

Explanation: By definition, the GDP deflator equals (nominal GDP ÷ real GDP) × 100. If the deflator is 150, then nominal GDP ÷ real GDP = 1.5, or 150%. Therefore nominal GDP is 150% of real GDP, making option C correct. A would imply a deflator of 50, B would imply equal nominal and real values, and D confuses the ratio with an additional percentage increase.

Correct answer: B. 75 percent

Explanation: The deflator formula is (nominal GDP ÷ real GDP) × 100. A deflator of 75 therefore means nominal GDP is 75% of real GDP. This is consistent with a price level below the base-year level, although the question asks only for the ratio. Option B is correct; 25% is the gap from 100, 100% means no price-level difference, and 175% reverses the comparison.

Correct answer: C. 110 and 10 percent

Explanation: The GDP deflator measures the current-price value of output relative to its constant-price value. Use: Deflator = (Nominal GDP ÷ Real GDP) × 100 = (26,400 ÷ 24,000) × 100 = 110. A deflator of 110 means the price level is 10% above the base-year level. Therefore, option C is correct; 100 would imply no price change, while 105 and 120 imply different price rises.

Correct answer: B. 90 and 10 percent

Explanation: The deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Thus, (18,000 ÷ 20,000) × 100 = 90. Since the base-year deflator is 100, a value of 90 means the measured price level is 10% below the base-year level. Hence option B is correct. A deflator of 80 would indicate a 20% fall, while 100 would indicate no change.

Correct answer: C. 20 percent

Explanation: First calculate the GDP deflator: (Nominal GDP ÷ Real GDP) × 100 = (21,600 ÷ 18,000) × 100 = 120. The base-year index is 100, so the excess is 120 − 100 = 20 index points, or 20%. Therefore, the price level is 20% higher than in the base year, making option C correct. The other choices do not match the calculated deflator.

Correct answer: A. The general price level of domestic final output is rising

Explanation: The GDP deflator is a price index for domestically produced final goods and services. If it rises each year, the average price level of that domestic final output is generally increasing relative to the base year, indicating inflationary pressure. A rising deflator does not by itself show that real output is falling, that population is unchanged, or that imported goods are cheaper. Therefore, option A is the precise conclusion.

Correct answer: C. 110

Explanation: The GDP deflator measures the price level of domestically produced final goods relative to the base year. Its formula is (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹990 crore ÷ ₹900 crore) × 100 = 1.10 × 100 = 110. A deflator of 110 means the measured price level is 10 percent above the base-year level, so option C is correct.

Correct answer: C. 100

Explanation: The GDP deflator is defined as nominal GDP divided by real GDP, multiplied by 100. If nominal GDP and real GDP are equal, their ratio is 1. Therefore, the deflator is 1 × 100 = 100. This indicates that the measured price level is equal to the base-year price level. Option C is correct; 0, 50, and 200 would imply different relationships between nominal and real GDP.

Correct answer: C. 100

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100, with real GDP valued at base-year prices. In the base year itself, nominal GDP and real GDP use the same prices, so their ratio is 1. Multiplying by 100 gives a deflator of 100. Therefore option C is correct. A value of 0 would not represent the base-year price index, while 50 or 200 would indicate prices below or above the base-year level.

Correct answer: B. It reflects changes in the price level of all final goods and services produced within the country.

Explanation: The GDP deflator is a broad domestic price index calculated as nominal GDP divided by real GDP, multiplied by 100. Its coverage includes final goods and services produced within the country, with changing production weights. Imports are excluded because they are not domestic production. The index measures price-level changes, not physical output changes. Hence option B is correct. Option A describes a narrower consumer-price perspective, while C and D contradict the definition.

Correct answer: A. The price level is 25 percent above the base year.

Explanation: A GDP deflator is an index whose base-year value is 100. A value of 125 means the current price level is 125% of the base-year price level. The increase over the base is therefore 125 − 100 = 25 index points, or 25%. It does not say that output fell or that population changed. Therefore option A is correct; option B reverses the meaning and options C and D refer to variables not measured by the deflator.

Correct answer: B. The current price level is 10 percent below the base year.

Explanation: The GDP deflator uses 100 as the base-year index. A value of 90 means the current price level equals 90% of the base-year level. The difference is 100 − 90 = 10 percentage points, so prices are 10% lower than in the base year. This does not imply zero real GDP or doubled nominal GDP. Therefore option B is correct. Option A wrongly treats 90 as an increase rather than an index level below 100.

Correct answer: C. Domestically produced final goods and services

Explanation: The GDP deflator measures the price change of final output produced within the domestic economy. It therefore covers domestically produced final goods and services, including consumption, investment, government, and export items where applicable. Imported goods are excluded because they are produced abroad, and intermediate goods are excluded to avoid double counting. Second-hand goods are not current production. Thus option C is the only correct answer.

Correct answer: D. Because imports are not part of domestic production.

Explanation: GDP measures the market value of final goods and services produced within a country’s borders. The GDP deflator compares nominal GDP with real GDP, so it must reflect prices of that domestic production. Imports are produced outside the country and are not part of domestic GDP; including them would mix foreign production into a domestic price index. Therefore option D is correct. Imports may affect other indicators such as consumer prices, but they are not directly covered by the GDP deflator.

Correct answer: C. 100

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. When nominal GDP and real GDP are equal, their ratio is 1, so the deflator is 1 × 100 = 100. Therefore, option C is correct. A value of 150 would mean that the current price level is 50% above the base-year level, while 50 or 75 would indicate a lower price level.