GDP Deflator

Correct answer: B. 30 percent

Explanation: The base-year deflator is 100, so a deflator of 70 means the current price level is 70% of the base-year level. The shortfall is calculated as 100 − 70 = 30%, so prices are 30% lower than in the base year. The value 70 describes the remaining index level, not the percentage decrease; 100 would imply a complete fall to zero.

Correct answer: A. Rise in prices of domestic final goods

Explanation: The GDP deflator is a price index based on domestically produced final goods and services: (Nominal GDP ÷ Real GDP) × 100. A rise in their prices increases nominal GDP relative to real GDP and therefore raises the deflator directly. A population change, more schools, or fewer working hours may affect economic conditions or output, but none automatically raises this price index.

Correct answer: B. It will generally remain unchanged

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100 and isolates price changes from output changes. If prices remain constant, nominal GDP and real GDP increase in the same proportion when output rises. Their ratio therefore stays constant, so the deflator generally remains unchanged. A rise in output alone does not imply a rise in the price index.

Correct answer: C. It remains unchanged

Explanation: The deflator is the ratio of nominal GDP to real GDP multiplied by 100. Suppose both initially equal 100; after a 20% rise, both equal 120, giving a deflator of (120 ÷ 120) × 100 = 100, the same as before. More generally, multiplying numerator and denominator by the same factor leaves their ratio unchanged. Therefore, option C is correct.

Correct answer: D. It will rise

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. If nominal GDP increases while real GDP is unchanged, the numerator rises and the denominator stays fixed, so the ratio and deflator increase. Therefore, option D is correct. Option A describes the opposite movement, while B and C do not follow from the formula.

Correct answer: A. It will fall

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. With real GDP held constant, a fall in nominal GDP reduces the numerator, so the ratio becomes smaller and the deflator falls. Hence option A is correct. A rise would require nominal GDP to increase relative to real GDP; doubling and always being above 100 are unsupported claims.

Correct answer: B. 10 percent

Explanation: A deflator is an index with the base-year value normally set at 100. The percentage change is [(110 − 100) ÷ 100] × 100 = 10%. Thus the price level increased by 10%, making option B correct. Eleven percent incorrectly uses 110 as the denominator, while 5% and 20% do not match the index movement.

Correct answer: C. A 5 percent fall

Explanation: Using the base-year index of 100, the change is [(95 − 100) ÷ 100] × 100 = −5%. The negative sign shows that the price level decreased by 5%; this is consistent with deflation. Therefore option C is correct. A rise and no change contradict the movement, while a 10% fall is an incorrect calculation.

Correct answer: D. No, because they are not current production

Explanation: GDP measures the market value of final goods and services produced during the current period. A second-hand item was counted when it was originally produced, so its later resale is not new production and is excluded from current GDP and its deflator. Therefore option D is correct. The resale price, location, or amount does not change this national-accounting rule.

Correct answer: A. The final output of the domestic economy

Explanation: The GDP deflator is the ratio of nominal GDP to real GDP, multiplied by 100. It reflects the prices of final goods and services produced within the domestic economy, including its current production mix. It is not limited to rural markets or financial assets and does not represent only foreign prices. Thus option A is correct.

Correct answer: B. ₹1050 crore

Explanation: The relationship is Nominal GDP = (GDP deflator × Real GDP) ÷ 100. Substituting the values gives (105 × ₹1000 crore) ÷ 100 = ₹1050 crore. Therefore option B is correct. The deflator of 105 means the current price level is 5% above the base, so nominal GDP is 1.05 times real GDP, not ₹950, ₹1100, or ₹1500 crore.

Correct answer: C. 90

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Substitution gives (₹630 crore ÷ ₹700 crore) × 100 = 0.9 × 100 = 90. Therefore option C is correct. A value of 90 indicates that the measured price level is 10% below the base-year level; the other values do not result from the given ratio.

Correct answer: D. By calculating the percentage change in the deflator

Explanation: Inflation measures the percentage rise in the general price level. When deflator values for two consecutive years are available, the estimate is [(Current-year deflator − Previous-year deflator) ÷ Previous-year deflator] × 100. Thus option D is correct. Adding or multiplying index values is not the inflation formula, and one year alone cannot show a change.

Correct answer: C. 110

Explanation: Apply the GDP deflator formula: (Nominal GDP ÷ Real GDP) × 100. The calculation is (₹880 crore ÷ ₹800 crore) × 100 = 1.1 × 100 = 110. Hence option C is correct. A deflator of 110 means the current price level is 10% above the base year; 90, 100, and 120 do not fit the given nominal-to-real GDP ratio.

Correct answer: C. ₹920 crore

Explanation: The governing relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = (GDP deflator × Real GDP) ÷ 100. Therefore, Nominal GDP = (115 × ₹800 crore) ÷ 100 = ₹920 crore. Hence option C is correct. The other values result from incorrect multiplication or percentage interpretation.

Correct answer: B. 10 percent

Explanation: Inflation is measured as the percentage increase in the price index: [(New deflator − Old deflator) ÷ Old deflator] × 100. Here the increase is 143 − 130 = 13, so the rate is (13 ÷ 130) × 100 = 10 percent. Therefore option B is correct. Dividing by 143 or treating 13 index points as 13 percent would give the misleading alternatives.

Correct answer: B. 10 percent

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. Thus, the deflator is (₹990 crore ÷ ₹900 crore) × 100 = 110. Since the base-year index is 100, an index of 110 means that the current price level is 10 percent higher than in the base year. Therefore option B is correct; the other choices misread the index difference.

Correct answer: B. 20 percent rise

Explanation: A GDP deflator of 100 represents the base-year price level. When it rises to 120, the index increases by 20 points relative to a base of 100. The percentage change is [(120 − 100) ÷ 100] × 100 = 20 percent. Therefore the price level rises by 20 percent, making option B correct. Options C and D reverse or ignore the change.

Correct answer: A. 5 प्रतिशत

Explanation: A deflator is an index of the general price level, so the percentage change is calculated relative to its initial value. Percentage increase = [(105 − 100) ÷ 100] × 100 = 5%. Therefore, option A is correct. The five-point index movement equals 5% here because the starting index is 100; it should not be confused with 105%.

Correct answer: A. The overall price level is rising

Explanation: The GDP deflator measures the average price of domestically produced final goods and services relative to a base period. Therefore, a continuous rise generally indicates that the overall price level of domestic final output is increasing. Option A is correct. It does not by itself prove that real output is falling, and it has no necessary implication for population or imports.

Correct answer: B. Deflation

Explanation: Because the GDP deflator tracks the average price level of domestic final output, a sustained decline indicates that this general price level is falling. Such a broad and continuing fall in prices is generally called deflation, so option B is correct. Inflation means a sustained rise in prices; population growth and fiscal deficit describe different economic phenomena.

Correct answer: C. Above 100

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. If nominal GDP is greater than real GDP, the ratio is greater than 1; multiplying it by 100 makes the deflator greater than 100. Thus, option C is correct. A value of 100 occurs when both GDP measures are equal, while a value below 100 occurs when nominal GDP is lower.

Correct answer: A. Below 100

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. When nominal GDP is less than real GDP, the fraction is less than 1, so the resulting index is below 100. Therefore, option A is correct. A deflator above 100 would require nominal GDP to exceed real GDP; it is not normally negative, and nothing in the relationship implies a value of exactly 200.

Correct answer: A. They may be recalculated according to the new base year

Explanation: A GDP deflator is an index whose reference point depends on the selected base year. When the base year changes, the price comparison, weighting structure, and historical series may be revised or rebased. The deflator is generally set to 100 in the new base year. Thus, option A is correct. Changing the base year does not eliminate nominal GDP or make every index zero.

Correct answer: B. Twice as high

Explanation: The GDP deflator is usually expressed as (Nominal GDP ÷ Real GDP) × 100, with the base-year index equal to 100. A deflator of 200 therefore means that the relevant price level is 200/100 = 2 times the base-year level, or 100% higher than the base year. It does not mean prices are 200 times higher. Thus, option B is correct.