GDP Deflator

Correct answer: D. ₹500 crore

Explanation: The governing relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = (Deflator × Real GDP) ÷ 100. Thus, (125 × 400) ÷ 100 = ₹500 crore. Hence option D is correct. ₹400 crore would ignore the deflator, while ₹320 crore uses the wrong direction of calculation.

Correct answer: A. ₹600 crore

Explanation: Use the GDP-deflator formula: Deflator = (Nominal GDP ÷ Real GDP) × 100. Solving for real GDP gives Real GDP = (Nominal GDP ÷ Deflator) × 100. Therefore, (720 ÷ 120) × 100 = ₹600 crore. Option A is correct. Multiplying 720 by 120 would move in the wrong direction and produce an implausible result.

Correct answer: B. To measure changes in the general price level

Explanation: The GDP deflator is a broad price index for domestically produced final goods and services. It compares nominal GDP with real GDP and therefore captures changes in the overall price level of domestic output. Option B is correct. Population, unemployment, and foreign debt require separate indicators; they are not measured by the GDP deflator.

Correct answer: C. Average price level has risen

Explanation: Because the GDP deflator measures the price level of domestic final output, a rise in it generally indicates that prices have increased relative to the base year. Thus, option C is correct and the movement is commonly associated with inflation. A higher deflator does not by itself prove that output fell, population declined, or exports became zero.

Correct answer: D. Average price level has fallen

Explanation: The GDP deflator reflects the average price of domestically produced final output relative to the base year. When it falls, the general price level is usually lower than before or has declined relative to the comparison period. Therefore option D is correct. The fall does not establish changes in population, output volume, or exports.

Correct answer: A. Nominal GDP will be greater than real GDP

Explanation: From the formula Deflator = (Nominal GDP ÷ Real GDP) × 100, a deflator above 100 means the nominal-to-real GDP ratio is greater than 1. Hence nominal GDP is generally greater than real GDP, making option A correct. A value below 100 would imply the opposite relationship; the other choices ignore the formula.

Correct answer: B. Nominal GDP will be less than real GDP

Explanation: The formula is Deflator = (Nominal GDP ÷ Real GDP) × 100. If the deflator is below 100, the ratio of nominal GDP to real GDP is below 1, so nominal GDP is generally less than real GDP. Thus option B is correct. Equality occurs at a deflator of 100, while a zero real GDP is not implied.

Correct answer: C. 120

Explanation: Apply the standard formula: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Substituting the values gives (₹840 crore ÷ ₹700 crore) × 100 = 1.2 × 100 = 120. Therefore option C is correct. A deflator of 120 means the relevant price level is 20% above the base-year level, not 10% or 40% above it.

Correct answer: D. 120

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Using the given values, (₹900 crore ÷ ₹750 crore) × 100 = 1.2 × 100 = 120. Hence option D is correct. Both GDP figures are already in the same unit, so the crore units cancel during division; 90, 100, and 110 do not satisfy the formula.

Correct answer: B. The deflator is based on domestic final output while CPI is based on a consumer basket

Explanation: The governing concept is the coverage of a price index. The GDP deflator compares nominal GDP with real GDP and reflects prices of final goods and services produced domestically, with a changing composition. CPI measures the cost of a representative consumer basket, which may include imported goods. Therefore option B correctly identifies the main difference; options A and D wrongly restrict the indexes to trade items, while C is not generally true.

Correct answer: C. Yes because it is based on current domestic production

Explanation: The relevant concept is the variable-weight nature of the GDP deflator. It is calculated from nominal GDP divided by real GDP, so it reflects the prices of goods and services produced in the current period. As domestic production changes, the relative quantities and types of final goods included can also change. Thus option C is correct. A and B falsely claim that the index covers one fixed good or an unchanging quantity, while D is wrong because imports are not domestic GDP.

Correct answer: D. ₹550 crore

Explanation: The governing relationship is GDP deflator = (Nominal GDP / Real GDP) × 100. Rearranging gives nominal GDP = real GDP × deflator / 100. Substitution gives ₹500 crore × 110 / 100 = ₹550 crore. Therefore option D is correct. A would imply a deflator below 100, B would imply a deflator of 100, and C does not follow from multiplying by 1.10.

Correct answer: A. ₹500 crore

Explanation: Use the identity deflator = (Nominal GDP / Real GDP) × 100. Solving for real GDP gives nominal GDP × 100 / deflator. Hence real GDP = ₹500 crore × 100 / 100 = ₹500 crore. A is therefore correct. A deflator of 100 represents the base-year price level, so nominal and real GDP have the same numerical value; B, C and D do not satisfy the identity.

Correct answer: B. 5 percent

Explanation: Inflation measured by the index is the percentage change from the initial value, not merely the index-point increase. The calculation is [(126 − 120) / 120] × 100 = (6/120) × 100 = 5%. Therefore option B is correct. Option A reports six index points as if they were six percent; C and D do not result from the required percentage-change formula.

Correct answer: C. 10 percent

Explanation: The percentage fall must be measured relative to the original index value. The decrease is 150 − 135 = 15 points, and the rate is (15/150) × 100 = 10%. Thus option C is correct. Option D confuses the 15-point fall with a 15% fall; A and B use incorrect denominators or calculations. The lower deflator indicates that the overall price level declined relative to its earlier value.

Correct answer: D. 120

Explanation: The GDP deflator equals (Nominal GDP / Real GDP) × 100. If nominal GDP is 20% higher than real GDP, nominal GDP is 1.20 times real GDP. Therefore the deflator is (1.20 × real GDP / real GDP) × 100 = 120. Option D is correct. A represents a 20% lower nominal value, B represents equal values, and C does not correspond to the stated 20% difference.

Correct answer: A. 80

Explanation: The governing formula is GDP deflator = (Nominal GDP / Real GDP) × 100. Since nominal GDP equals 80% of real GDP, the ratio nominal GDP/real GDP is 0.80. Thus the deflator is 0.80 × 100 = 80. Option A is correct. A value of 100 would require nominal and real GDP to be equal, while 120 or 125 would require nominal GDP to exceed real GDP.

Correct answer: B. Nominal GDP and real GDP

Explanation: The GDP deflator is a broad price index calculated as (Nominal GDP / Real GDP) × 100 for the same period. Consequently, the two required measures are nominal GDP, valued at current prices, and real GDP, valued at base-year prices. Option B is correct. Population, employment, trade flows, taxes, and government spending may matter in other analyses, but none of those pairs supplies the deflator directly.

Correct answer: C. It will rise

Explanation: The key concept is the separation of price effects from quantity effects. With output quantity unchanged, real GDP remains constant when measured at base-year prices. If current prices rise, nominal GDP increases, so the ratio (Nominal GDP / Real GDP) × 100 also increases. Therefore option C is correct. The deflator does not fall or become zero, and it remains 100 only when current and base-year price levels are equal.

Correct answer: D. It will fall

Explanation: The GDP deflator measures the price level of domestically produced final goods and services: Deflator = (Nominal GDP ÷ Real GDP) × 100. If output quantity is unchanged, real GDP remains constant at base-year prices. A fall in current prices reduces nominal GDP, so the ratio and therefore the deflator fall. It does not double or remain unchanged.

Correct answer: A. 125

Explanation: The governing formula is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Substituting the values gives (₹1000 crore ÷ ₹800 crore) × 100 = 1.25 × 100 = 125. Thus the correct answer is 125, meaning the measured price level is 25% above the base-year level. Options 120 and 110 use incorrect ratios, while 80 reverses the division.

Correct answer: B. ₹840 crore

Explanation: From the deflator formula, Deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = (Deflator × Real GDP) ÷ 100. Therefore, Nominal GDP = (140 × ₹600 crore) ÷ 100 = ₹840 crore. ₹720 crore would correspond to a deflator of 120, while the other options result from incorrect multiplication or division.

Correct answer: C. ₹800 crore

Explanation: The GDP deflator formula is Deflator = (Nominal GDP ÷ Real GDP) × 100. Solving for real GDP gives Real GDP = (Nominal GDP × 100) ÷ Deflator. Thus, Real GDP = (₹960 crore × 100) ÷ 120 = ₹800 crore. ₹720 crore and ₹880 crore do not satisfy the formula, and ₹760 crore results from an incorrect division.

Correct answer: D. 100

Explanation: A price index such as the GDP deflator normally assigns the base year a value of 100. This convention makes comparisons straightforward: a deflator of 125 indicates a price level 25% above the base year, while 80 indicates a level 20% below it. Therefore, 100 is the correct base value; 1 is sometimes used in ratio form, but not as the usual index value.

Correct answer: A. 60 percent

Explanation: The base-year value of the GDP deflator is 100. A deflator of 160 means the current price level is 160% of the base-year level. The increase over the base is therefore 160 − 100 = 60 percentage points, or 60%. It is not a 160% increase; that would incorrectly treat the index level itself as the increase.