GDP Deflator

Correct answer: A. 20 percent

Explanation: The governing concept is percentage change in a price index, calculated relative to the initial value. The index rises from 110 to 132, so the increase is 132 − 110 = 22 points. Dividing by the original index gives (22 ÷ 110) × 100 = 20%. Therefore, option A is correct. Option B confuses the index-point increase with the percentage increase, while options C and D use incorrect bases or calculations.

Correct answer: C. 2 to 1

Explanation: By definition, the GDP deflator equals (nominal GDP ÷ real GDP) × 100. Substituting a deflator of 200 gives nominal GDP ÷ real GDP = 200 ÷ 100 = 2. Therefore nominal GDP is twice real GDP, or the ratio is 2:1. Option C is correct. Option A reverses the ratio, option B would imply a deflator of 100, and option D fails to remove the index’s 100 multiplier.

Correct answer: A. GDP deflator measures domestic final output while CPI measures a consumer basket

Explanation: The GDP deflator is a broad price index for domestically produced final goods and services, with weights that change with current production. CPI measures the cost of a specified basket of goods and services purchased by consumers; it can include imports and generally excludes capital goods bought by firms. Thus option A correctly identifies the distinction. Options B, C, and D incorrectly describe coverage or claim that the indexes are identical.

Correct answer: A. Real GDP and GDP deflator

Explanation: Real GDP values current output at base-year prices, so it is designed to reveal changes in production volume without the distorting effect of price changes. The GDP deflator compares nominal GDP with real GDP and summarizes the economy-wide price level for domestically produced final goods. Using both measures separates output growth from price growth. The other pairs do not provide this complete separation.

Correct answer: C. 12 percent

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. In year one it is (2,000 ÷ 1,600) × 100 = 125. In year two it is (2,310 ÷ 1,650) × 100 = 140. The deflator growth rate is [(140 − 125) ÷ 125] × 100 = (15 ÷ 125) × 100 = 12 percent. Therefore option C is correct; 8, 10 and 15 percent do not represent the calculated percentage change in the deflator.

Correct answer: C. 150

Explanation: The GDP deflator is (Nominal GDP / Real GDP) × 100. If nominal GDP is 50% higher than real GDP, the ratio Nominal GDP / Real GDP is 1.50. Therefore, the deflator is 1.50 × 100 = 150. Option B would represent equality between nominal and real GDP, while 50 and 200 do not match the stated ratio.

Correct answer: A. No direct effect

Explanation: The GDP deflator measures the prices of final goods and services produced within the domestic economy. An imported mobile phone is not domestic production, so its price is excluded from both the domestic-output price measure and the GDP deflator basket. With domestic production and domestic prices unchanged, the direct effect is zero. Therefore A is correct; CPI could be affected if the phone is in its consumer basket.

Correct answer: C. 120

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. For this single good, nominal GDP is 40 × ₹90 = ₹3,600, while real GDP valued at the base-year price is 40 × ₹75 = ₹3,000. Thus, the deflator is (3,600 ÷ 3,000) × 100 = 120. The quantity cancels because it is identical in both values; therefore, option C is correct.

Correct answer: D. 133.33

Explanation: First calculate real GDP: 75 percent of ₹1,500 crore is 0.75 × 1,500 = ₹1,125 crore. The GDP deflator is (Nominal GDP ÷ Real GDP) × 100, so it equals (1,500 ÷ 1,125) × 100 = 133.33 approximately. A deflator of 100 would indicate equal nominal and real GDP, while 75 is the real-GDP ratio, not the deflator. Thus option D is correct.

Correct answer: B. 20 percent

Explanation: The GDP deflator measures the current price level relative to the base year: (Nominal GDP ÷ Real GDP) × 100. Here it is (₹2,100 crore ÷ ₹1,750 crore) × 100 = 120. A deflator of 120 means prices are 120 percent of their base-year level, or 20 percent above it. Therefore, option B is correct; 25 percent would incorrectly use the difference without the proper base.

Correct answer: A. Negative 10 percent

Explanation: The deflator-based inflation rate is calculated as [(new deflator − old deflator) ÷ old deflator] × 100. Here it is [(162 − 180) ÷ 180] × 100 = (−18 ÷ 180) × 100 = −10 percent. The negative sign indicates deflation, or a fall in the general price level. The change of 18 points is not the percentage rate, so option A is correct.

Correct answer: A. Current average prices are below base-year prices

Explanation: The GDP deflator is calculated as nominal GDP divided by real GDP, multiplied by 100. A value below 100 means that the current aggregate price level is below the base-year level. Therefore option A is correct. It does not imply zero output, and it does not mean nominal GDP is always double; option B reverses the price comparison.

Correct answer: C. 85

Explanation: The GDP deflator formula is (nominal GDP ÷ real GDP) × 100. Substituting the values gives (₹850 crore ÷ ₹1,000 crore) × 100 = 85. The crore units cancel during division, so option C is correct. Option D reverses the numerator and denominator, while 75 and 80 do not follow from the formula.

Correct answer: A. 8.33 percent

Explanation: The inflation rate based on the GDP deflator is calculated as the percentage change in the index: [(156 − 144) ÷ 144] × 100. This equals (12 ÷ 144) × 100 = 8.333..., or approximately 8.33 percent. Therefore option A is correct. The 12-point change is an index-point increase, not the percentage inflation rate.

Correct answer: A. 5 percent

Explanation: The GDP deflator is a price index, so the percentage change must be calculated relative to its initial value, not merely from the index-point difference. Percentage increase = ((126 − 120) / 120) × 100 = (6/120) × 100 = 5%. Therefore, option A is correct. Option B confuses six index points with six percent, while C and D use incorrect denominators or interpretations.

Correct answer: B. 10 percent fall

Explanation: Because the deflator is an index of the price level, the percentage fall is measured against the original value of 140. Percentage change = ((126 − 140) / 140) × 100 = (−14/140) × 100 = −10%. Thus the price level falls by 10%, making option B correct. Option C reports the index-point fall rather than the percentage fall, and D reverses the direction.

Correct answer: B. 108.3

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. Therefore, (₹1,300 ÷ ₹1,200) × 100 = 108.33, which rounds to 108.3. Option B is correct. A reverses or miscalculates the ratio, while C and D do not follow from the stated figures.

Correct answer: A. Change in the overall price level of domestic output

Explanation: The GDP deflator is a broad price index for final goods and services produced within the domestic economy. It is calculated as (Nominal GDP ÷ Real GDP) × 100 and captures changes in the overall price level of domestic output. Therefore option A is correct. Unemployment, population, and export volume are separate indicators and are not what the deflator primarily measures.

Correct answer: C. 120

Explanation: The GDP deflator is calculated by the formula (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹600 crore ÷ ₹500 crore) × 100 = 1.2 × 100 = 120. Hence option C is correct. A value of 120 also indicates that the overall price level is 20 percent above the base-year level; the other options use an incorrect ratio or omit the multiplier.

Correct answer: B. The price level is 15 percent above the base year

Explanation: The GDP deflator is an index with a base-year value of 100. A deflator of 115 therefore means that the prices of domestically produced final output are, on average, 15 percent higher than in the base year. It does not indicate a 115 percent rise in real output and says nothing about nominal GDP being zero. Thus option B is correct.

Correct answer: C. 10 percent lower

Explanation: The base-year GDP deflator is 100. A current deflator of 90 is 10 index points below that benchmark, so the current average price level is [(90 − 100) ÷ 100] × 100 = −10 percent, or 10 percent lower than the base year. Therefore option C is correct. It is not 90 percent higher and it is not unchanged.

Correct answer: C. Domestically produced final goods and services

Explanation: The GDP deflator reflects the prices of all final goods and services produced within a country’s domestic territory and included in GDP. Its coverage is broader than only consumer or agricultural goods, while imported goods are excluded from domestic production. Therefore option C is correct. The key distinction is domestic production, not the particular sector or consumer-use category.

Correct answer: A. Because they are not domestic production

Explanation: GDP measures the value of final goods and services produced within a country’s domestic territory. Imported consumer goods may be final goods and may have market prices, but they are produced abroad, so their prices are not directly part of the GDP deflator for domestic output. Therefore option A is correct; the other statements confuse origin, use, or the base-year concept.

Correct answer: C. 120

Explanation: The governing formula is 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. Option A or B would result from an incorrect ratio or rounding, while 140 does not follow from the stated GDP values.

Correct answer: D. ₹1,000 करोड़

Explanation: The relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = Real GDP × Deflator ÷ 100. Thus, nominal GDP = ₹800 crore × 125 ÷ 100 = ₹1,000 crore. Hence option D is correct. ₹800 crore ignores the price adjustment, and ₹640 crore incorrectly divides by 1.25 instead of multiplying by it.