GDP Deflator

Correct answer: C. 120

Explanation: Use the GDP deflator formula: (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹1,440 crore ÷ ₹1,200 crore) × 100 = 1.2 × 100 = 120. The crore units cancel because both figures use the same unit. Therefore, Option C is correct. The other values result from inaccurate division or incorrect multiplication by 100.

Correct answer: C. ₹1,860 crore

Explanation: Since GDP deflator = (Nominal GDP ÷ Real GDP) × 100, nominal GDP can be found as Real GDP × (Deflator ÷ 100). Therefore, nominal GDP = ₹1,500 crore × (124 ÷ 100) = ₹1,500 × 1.24 = ₹1,860 crore. Option C is correct. The deflator must be converted from an index number into 1.24 before multiplying; directly adding 124 would be incorrect.

Correct answer: C. ₹1,800 crore

Explanation: The deflator formula is (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Real GDP = Nominal GDP × 100 ÷ Deflator. Thus, real GDP = ₹2,070 crore × 100 ÷ 115 = ₹207,000 ÷ 115 = ₹1,800 crore. Option C is correct. Dividing nominal GDP by 115 without multiplying by 100 would incorrectly treat the index as a simple ratio.

Correct answer: A. The price level is 30 percent above the base year

Explanation: A GDP deflator is a price index with the base-year level set at 100. A value of 130 means the current price level is 130% of the base-year level. The increase over the base year is therefore 130 − 100 = 30 percentage points, or 30% above the base-year level. Option A is correct. The index is not itself a 130% increase, and it says nothing directly about real output being lower.

Correct answer: C. 15 percent

Explanation: The GDP deflator is a price index whose base-year value is 100. A deflator of 85 means the current average price level is 85% of the base-year level. The decrease is therefore 100 − 85 = 15%. Hence, Option C is correct. The value 85 is the index level, not the percentage decrease; the comparison must be made with the base value of 100.

Correct answer: B. 5 percent

Explanation: Inflation is measured as the percentage increase in the price index: [(New index − Old index) ÷ Old index] × 100. The index rises by 109.2 − 104 = 5.2 points. Therefore, inflation = (5.2 ÷ 104) × 100 = 5%. Option B is correct. The value 5.2 is the index-point change, while 9.2 is the new index minus 100, not the inflation rate over the stated period.

Correct answer: B. 8 percent fall

Explanation: The percentage change in the price level is calculated as [(new index − old index) ÷ old index] × 100. Thus, [(138 − 150) ÷ 150] × 100 = (−12 ÷ 150) × 100 = −8%. The negative sign means a fall, so option B is correct. Option A uses an incorrect base, while C and D confuse the absolute index-point change with the percentage change.

Correct answer: B. About 5.5 percent

Explanation: The GDP deflator equals nominal GDP divided by real GDP, multiplied by 100. If both are expressed as growth factors, the deflator factor is 1.16 ÷ 1.10 = 1.0545. Therefore, the price-level increase is approximately 5.45%, or 5.5%. Option B is correct; simply subtracting 10 from 16 gives only a rough, less accurate estimate.

Correct answer: A. About 2.7 percent fall

Explanation: Because the deflator measures the price component of nominal GDP, compare the growth factors of nominal and real GDP: 1.09 ÷ 1.12 − 1 = −0.0268, or about −2.7%. Thus the price level falls by approximately 2.7%, making option A correct. The result is not −3% exactly because division, rather than simple subtraction, gives the precise rate.

Correct answer: C. It will remain unchanged

Explanation: The deflator is nominal GDP divided by real GDP, multiplied by 100. If both quantities become 93% of their original values, the new ratio is (0.93 nominal GDP) ÷ (0.93 real GDP), so the common factor cancels. The ratio and therefore the deflator remain unchanged. Hence option C is correct; the equal falls must not be added or assigned separately to the index.

Correct answer: B. 125.8

Explanation: The GDP deflator is calculated as (nominal GDP ÷ real GDP) × 100. Substituting the values gives (₹1,245 ÷ ₹990) × 100 = 125.757..., which rounds to 125.8. Therefore option B is correct. A value above 100 indicates that the current price level is higher than the base-year price level; the other choices are inaccurate approximations.

Correct answer: B. A newly produced domestic tractor

Explanation: The GDP deflator reflects prices of final goods and services produced within the domestic economy. A newly produced domestic tractor is a final capital good included in domestic output, so its price enters the deflator. An imported watch is excluded from domestic production, a used-car resale reflects no new current output, and a pension is a transfer payment rather than production. Therefore B is correct.

Correct answer: A. Its weights can change with current output

Explanation: The GDP deflator is an implicit price index for domestically produced final output. Because the composition and quantities of current domestic production can change from one period to another, the output-based weights also change. CPI generally uses a specified consumer basket and its established weights. Thus option A is correct; the other statements incorrectly describe coverage or the existence of a base year.

Correct answer: A. Because imports are not domestic production

Explanation: The GDP deflator covers prices of final goods and services produced within the domestic economy. Imported clothing may be purchased by domestic consumers, but its production occurred abroad, so its price is not directly part of domestic GDP or its deflator. CPI can nevertheless rise because it includes goods consumed by households, including imports. Therefore option A is correct.

Correct answer: B. GDP deflator

Explanation: The GDP deflator measures the prices of all domestically produced final goods and services relative to their prices in the base year. Industrial machines produced within the country are final capital goods when purchased for investment, so their price increase can raise nominal GDP and affect the deflator. CPI is narrower because it tracks a consumer basket, while population indices do not measure prices.

Correct answer: A. A comparable base-year price will not be available

Explanation: A price index compares current prices with corresponding base-year prices. If a newly introduced good was absent in the base year, there is no direct historical price for that exact product, creating a matching and valuation problem. Statistical agencies may need an estimated comparable price, a linked series, or a quality adjustment. Its current quantity need not be zero, and it may be domestic or imported.

Correct answer: A. Quality adjustment

Explanation: A price increase can contain two components: genuine inflation and payment for improved product quality. If a laptop becomes faster or more capable, treating the entire 12 percent increase as a pure price rise would overstate inflation. Quality adjustment estimates the price of comparable performance, allowing the deflator to capture the actual change in prices rather than the value of added features. The product should not simply be excluded.

Correct answer: B. 65 percent

Explanation: The GDP deflator formula is (Nominal GDP / Real GDP) × 100. If the deflator equals 65, then Nominal GDP / Real GDP = 65/100 = 0.65. Thus nominal GDP is 65 percent of real GDP. Option A is the gap from 100, not the required ratio; 100 percent would indicate equal nominal and real GDP, while 165 percent reverses the interpretation.

Correct answer: B. ₹1,710 crore

Explanation: Use the GDP-deflator relationship: Deflator = (Nominal GDP / Real GDP) × 100. Rearranging gives Nominal GDP = Real GDP × Deflator / 100. Substitution gives ₹1,800 crore × 95/100 = ₹1,710 crore. Because the deflator is below 100, nominal GDP is lower than real GDP at the chosen base-year prices. Therefore option B is correct.

Correct answer: B. ₹1,900 crore

Explanation: The deflator formula is Deflator = (Nominal GDP / Real GDP) × 100. Solving for real GDP gives Real GDP = Nominal GDP × 100 / Deflator. Hence Real GDP = ₹2,280 crore × 100/120 = ₹1,900 crore. Dividing nominal GDP by 1.20 removes the current-price effect. Therefore option B is correct; the other values result from incorrect division or scaling.

Correct answer: C. 120

Explanation: Apply the definition: GDP deflator = (Nominal GDP / Real GDP) × 100. Substituting the given values gives (₹1,920 crore / ₹1,600 crore) × 100 = 1.2 × 100 = 120. Thus the current price level is 120 percent of the base-year level, or 20 percent higher. Options 110, 115, and 125 do not follow from the stated ratio.

Correct answer: B. 10 percent

Explanation: Inflation between two years is measured by the percentage change in the price index, not simply by the second index value. The calculation is [(121 − 110) / 110] × 100 = (11/110) × 100 = 10 percent. Therefore the price level rose by 10 percent from the first year to the next. Option D incorrectly treats 121 as the inflation rate.

Correct answer: B. 5 percent

Explanation: Inflation is calculated as the percentage change in the price index: ((new deflator − old deflator) ÷ old deflator) × 100. Here, the increase is 102.9 − 98 = 4.9, and 4.9 ÷ 98 × 100 = 5 percent. Therefore, option B is correct. Option C incorrectly treats the index-point rise as the inflation rate, while option A and option D use incorrect bases or calculations.

Correct answer: B. 10 percent

Explanation: The deflation rate is the percentage fall from the initial deflator. Apply the formula: ((old deflator − new deflator) ÷ old deflator) × 100. The fall is 125 − 112.5 = 12.5, so 12.5 ÷ 125 × 100 = 10 percent. Hence, option B is correct. A negative percentage change of −10 percent represents a 10 percent deflation rate; option C is only the index-point fall.

Correct answer: B. It will rise by 20 percent

Explanation: The GDP deflator measures the price level of domestically produced final goods and services, while holding the relevant quantity information in the GDP comparison. If output quantities do not change and every price rises by 20 percent, nominal GDP rises by 20 percent relative to real GDP. Therefore, the deflator also rises by 20 percent, making option B correct. It does not remain unchanged because prices, not quantities, determine this movement.