GDP Deflator

Correct answer: A. It is a broad index of price changes in domestic final output

Explanation: The GDP deflator is an implicit price index obtained by comparing nominal GDP with real GDP. It captures price changes for the final goods and services produced within the domestic economy, with coverage linked to current output. It is not limited to food, does not consist only of imports, and is not a direct measure of physical production quantity. Therefore, the broad description in option A is correct.

Correct answer: B. Ratio of nominal GDP to real GDP

Explanation: The GDP deflator is a broad price index for domestically produced final goods and services. Its formula is (Nominal GDP ÷ Real GDP) × 100, so it uses the ratio of nominal GDP to real GDP. Therefore option B is correct. The other ratios concern population, foreign trade, or saving and investment, none of which defines the GDP deflator.

Correct answer: A. GDP Deflator = (Nominal GDP ÷ Real GDP) × 100

Explanation: The GDP deflator compares the value of current production at current prices with its value at base-year prices. Its mathematical formula is GDP Deflator = (Nominal GDP ÷ Real GDP) × 100. Hence option A is correct. Reversing the numerator and denominator produces a different index, while multiplication or addition does not measure the relative price level.

Correct answer: C. 110

Explanation: Apply the standard formula: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Substitution gives (₹550 ÷ ₹500) × 100 = 1.10 × 100 = 110. Therefore option C is correct. A deflator of 110 indicates that the relevant price level is 10% above the base-year level. The other choices reflect incorrect division or incomplete percentage conversion.

Correct answer: C. 125

Explanation: The governing formula is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Using the figures, (₹750 ÷ ₹600) × 100 = 1.25 × 100 = 125. Therefore option C is correct. A value of 120 would come from an incorrect ratio, while 100 would imply equal nominal and real GDP. The result 125 also means the price level is 25% above the base year.

Correct answer: C. ₹960 crore

Explanation: Use the relationship Nominal GDP = Real GDP × GDP deflator ÷ 100. Thus, Nominal GDP = ₹800 × 120 ÷ 100 = ₹800 × 1.20 = ₹960 crore. Hence option C is correct. The deflator of 120 means that the nominal value is 120% of the real value. The other options arise from using the wrong percentage or an inaccurate multiplication.

Correct answer: B. ₹600 crore

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Real GDP = Nominal GDP × 100 ÷ GDP deflator. Substituting the values: Real GDP = ₹840 × 100 ÷ 140 = ₹84,000 ÷ 140 = ₹600 crore. Equivalently, a deflator of 140 means nominal GDP reflects a price level of 1.40 relative to the base, so ₹840 ÷ 1.40 = ₹600 crore. Therefore, option B is correct.

Correct answer: A. 8 percent

Explanation: The GDP deflator is an index in which the base-year price level equals 100. A deflator of 108 means the current price level is 108% of the base-year level. Therefore, the increase is 108 − 100 = 8 percentage points, or 8% above the base year. Option A is correct; 108% is the index value, not the increase.

Correct answer: C. 15 percent

Explanation: The GDP deflator uses 100 as the base-year price index. A value of 85 means that the current price level is 85% of the base-year level. The shortfall is therefore 100 − 85 = 15 percentage points, or 15% below the base year. Option C is correct. The figure 85 describes the index level, not the percentage decrease.

Correct answer: B. 15 percent

Explanation: The base-year deflator is 100, so it represents the original price level. When the deflator rises to 115, the index increases by 115 − 100 = 15 points. Because the base is 100, this equals a 15% increase in the price level. Option B is correct. The value 115 is the new index level, not a 115% increase.

Correct answer: B. 8 percent fall

Explanation: A deflator of 100 represents the base-year price level. If it falls to 92, the index has decreased by 100 − 92 = 8 points. Since the base is 100, this means the price level has fallen by 8%. Thus option B is correct. It indicates a lower general price level, while option C incorrectly treats 92 as the size of the fall.

Correct answer: C. Imported goods

Explanation: The GDP deflator measures the prices of final goods and services produced within the domestic economy. Imported goods are excluded because they are produced abroad and therefore do not form part of domestic GDP. Domestic final goods, services, and newly produced capital goods can be included. Hence option C is correct; the consumer price index may include imports, but the GDP deflator does not.

Correct answer: A. A newly produced machine made within the country

Explanation: The GDP deflator covers prices of final goods and services produced domestically during the current period. A newly produced machine made within the country is current domestic capital output, so its value is included in GDP and its price can enter the deflator. An imported phone is foreign production, a used-car resale is not current production, and a share purchase is a financial transaction. Therefore option A is correct.

Correct answer: B. Because it is not current production

Explanation: The GDP deflator is based on prices of goods and services produced in the current period. A second-hand good was produced and counted in GDP when it was new, so its resale does not represent new output. Including the resale would count the same production twice. Therefore option B is correct. The item need not be imported, expensive, or sold at a fixed price.

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 by 100 produces a value above 100. This generally indicates that current-period prices exceed the base-year price level. Hence option C is correct. A value of 100 would mean equality, while a value below 100 would imply nominal GDP is lower than real GDP.

Correct answer: A. Below 100

Explanation: Using the formula GDP deflator = (Nominal GDP ÷ Real GDP) × 100, a real GDP value greater than nominal GDP makes the ratio less than 1. The resulting deflator is therefore below 100. This suggests that the current price level is lower than the base-year level, under the stated comparison. Option A is correct; the other choices do not follow from the ratio.

Correct answer: B. 100

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹900 crore ÷ ₹900 crore) × 100 = 1 × 100 = 100. Equal nominal and real GDP indicate that the measured price level equals the base-year level. Therefore option B is correct; 90, 110, and 180 do not satisfy the formula.

Correct answer: B. 10 percent

Explanation: The governing concept is the GDP deflator, which measures the current price level relative to the base year: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Thus, (660 ÷ 600) × 100 = 110. A value of 110 means prices are 110% of the base-year level, or 10% higher. Therefore, option B is correct; 5%, 15%, and 20% do not follow from the calculated index.

Correct answer: B. 90

Explanation: The governing concept is the GDP deflator: GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Substituting the values gives (720 ÷ 800) × 100 = 90. Therefore, the deflator is 90, meaning the current price level is 90% of the base-year level, or 10% lower. Option B is correct; 80, 100, and 110 result from incorrect division or misinterpretation of the index.

Correct answer: B. ₹630 crore

Explanation: The governing relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = Real GDP × Deflator ÷ 100. Therefore, nominal GDP = 700 × 90 ÷ 100 = ₹630 crore. Option B is correct. ₹700 crore would ignore the deflator, while ₹600 crore and ₹770 crore use an incorrect percentage adjustment.

Correct answer: C. ₹800 crore

Explanation: The GDP deflator formula is (Nominal GDP ÷ Real GDP) × 100. Solving for real GDP gives Real GDP = Nominal GDP × 100 ÷ Deflator. Hence, real GDP = 1,040 × 100 ÷ 130 = ₹800 crore. Option C is correct. The factor of 100 is essential because the deflator is an index with a base value of 100; the other options do not satisfy the formula.

Correct answer: C. 150

Explanation: The governing concept is the GDP deflator, calculated as (Nominal GDP ÷ Real GDP) × 100. Using the given figures, the deflator = (1,350 ÷ 900) × 100 = 1.5 × 100 = 150. Thus, option C is correct. A deflator of 150 means the current price level is 150% of the base-year level, or 50% above it; the other values are inconsistent with the ratio.

Correct answer: C. 150 percent

Explanation: The governing concept is the interpretation of an index number. By definition, the GDP deflator equals the current price level expressed as a percentage of the base-year price level, whose index is 100. Therefore, a deflator of 150 means the current price level is 150% of the base-year level. It is also 50% higher, but 50% is the increase, not the requested level. Hence option C is correct.

Correct answer: B. 65 percent

Explanation: The GDP deflator directly expresses the current price level as a percentage of the base-year level. Therefore, a deflator of 65 means the current price level is 65% of the base-year level. This also implies that prices are 35% lower than in the base year, but 35% is the decrease rather than the requested level. Thus, option B is correct; 100% is the unchanged level and 165% is unrelated.

Correct answer: B. 20 percent

Explanation: Inflation is the percentage rise in the price index relative to its initial value. The change in the deflator is 150 − 125 = 25 points. Therefore, inflation rate = (25 ÷ 125) × 100 = 20%. Option B is correct. Dividing by 100 or using the final index as the denominator would be incorrect; 25 is the index-point change, not the percentage rate.