GDP Deflator

Correct answer: A. By the current production weights of both goods

Explanation: A GDP deflator is a ratio of the value of current domestic production at current prices to its value at base-year prices. Consequently, the effect of each price change depends on that good's share in current production. A 30% rise may dominate if the first good has a larger weight, but the percentages alone cannot determine the total change. Thus option A is correct.

Correct answer: A. Because rising output can increase the service sector's weight

Explanation: The GDP deflator uses the current composition of domestic production as its implicit weighting system. If a service sector expands rapidly, its share of current GDP can become larger. A price rise in that sector will then receive greater influence in the aggregate deflator. Services are included when produced domestically, and the deflator is not a fixed-weight index, so options B, C and D are incorrect.

Correct answer: A. A tendency to rise because of domestic price increases

Explanation: The GDP deflator measures the price change of domestically produced final output. Imported goods are excluded from domestic GDP, although they may affect other price measures such as a consumer price index. Therefore, the 12% rise in domestic final-good prices gives the main direct upward pressure on the deflator. The exact aggregate change still depends on production weights.

Correct answer: C. 10 percent

Explanation: The governing concept is that the deflator is a ratio, so growth factors must be divided rather than subtracted. The nominal-GDP factor is 1.264 and the real-GDP factor is 1.15. Thus, deflator growth factor = 1.264/1.15 = 1.10, giving growth of 1.10 − 1 = 0.10, or 10 percent. Therefore option C is correct; 11.4 percent is only the difference between the two growth rates.

Correct answer: B. 10 percent rise

Explanation: The governing formula is GDP deflator = Nominal GDP ÷ Real GDP × 100, so percentage changes must be converted into remaining factors. After a 12% fall, nominal GDP becomes 0.88 of its original value; after a 20% fall, real GDP becomes 0.80. The ratio changes by 0.88/0.80 = 1.10, meaning a 10% rise in the deflator. Thus option B is correct; subtracting 12 from 20 is not valid for a ratio.

Correct answer: B. 50 percent rise

Explanation: The GDP deflator equals (Nominal GDP / Real GDP) × 100. If nominal GDP stays constant and real GDP falls to two-thirds of its earlier value, the deflator becomes 1 ÷ (2/3) = 3/2 times its original value. Therefore it rises by 50%, making option B correct. The change is not 33.3% because the denominator has fallen, and the reciprocal effect must be used.

Correct answer: B. About 19.3 percent rise

Explanation: Because Real GDP = Nominal GDP / Deflator, use growth factors rather than subtracting percentages. The nominal factor is 1.05 and the deflator factor is 0.88, so the real GDP factor is 1.05 / 0.88 = 1.1932. Real GDP therefore rises by approximately 19.3%, making option B correct. Simple subtraction, such as 5% − 12%, gives the wrong result.

Correct answer: C. On current output weights and price changes of all goods

Explanation: The GDP deflator is a price index for domestically produced final output and is calculated from the value of current output at current prices relative to its value at base prices. Consequently, every good’s price movement matters, but its effect depends on its current-output weight. A large rise in a low-weight good may be outweighed by falls in heavily weighted goods, so option C is correct.

Correct answer: B. The deflator may rise because domestic final output gained weight

Explanation: The GDP deflator includes domestically produced final goods, whereas an imported machine is not part of domestic GDP. When production shifts toward a higher-priced domestic machine, the composition and value of domestic output change; if the relevant domestic price index rises, the deflator may rise as well. Thus option B is the best answer. It is not necessarily a fall, and the change is not determined merely by the machines being similar.

Correct answer: C. It may rise, fall, or remain unchanged

Explanation: Nominal GDP equals real GDP multiplied by the GDP deflator. A higher deflator pushes nominal GDP upward, whereas falling real output pushes it downward. Without knowing the magnitudes of both changes, the product could increase, decrease, or remain unchanged. Hence option C is correct. Options A and B assume that one effect must dominate, while option D wrongly treats nominal and real GDP as identical.

Correct answer: D. Its direction depends on the relative size of both changes

Explanation: Nominal GDP is the product of real GDP and the GDP deflator. Rising real output tends to increase nominal GDP, but a falling deflator tends to reduce it. The net result depends on which percentage change is larger in proportional terms. Therefore, option D is correct. It is not necessarily a rise or fall, and there is no basis for claiming that the product must remain constant.

Correct answer: C. The old building’s price has no direct effect

Explanation: GDP records the value of current production during the accounting period. An old building was produced in an earlier period, so a higher resale price is a change in the price of an existing asset, not current production. The brokerage agency’s current service may be included, but its unchanged fee creates no direct price effect here. Therefore, option C is correct; the resale price itself does not directly enter the GDP deflator.

Correct answer: B. No, because the deflator measures price changes only

Explanation: A lower GDP deflator indicates a lower measured price level for domestically produced final goods and services relative to the base period. It does not show whether pollution, resource depletion, health damage, or other environmental costs have increased or decreased. Consequently, a fall in the deflator alone cannot establish higher economic welfare. Option B is correct; A and C make unsupported claims, while D is too absolute.

Correct answer: B. No, because inflation is measured by the growth rate of the index

Explanation: A deflator of 150 means that the measured price level is 150 percent of the base-year level, while 120 means 120 percent of the base-year level. These levels alone do not reveal current inflation. Inflation is the percentage change in the deflator over a specified period, such as (current index − previous index) ÷ previous index. Thus option B is correct; population size is irrelevant to this comparison.

Correct answer: C. 120

Explanation: The GDP deflator formula is (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (₹1980 crore ÷ ₹1650 crore) × 100 = 1.2 × 100 = 120. The common crore unit cancels in the ratio. Therefore option C is correct; 110, 115, and 125 result from incorrect division or multiplication.

Correct answer: C. ₹1728 crore

Explanation: The relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = Real GDP × Deflator ÷ 100. Thus nominal GDP = ₹1350 crore × 128 ÷ 100 = ₹1728 crore. The other values do not apply the deflator factor correctly, so option C is unambiguous.

Correct answer: B. 14.29 प्रतिशत

Explanation: Because the GDP deflator equals nominal GDP divided by real GDP, growth rates must be converted into multipliers before comparison. The new deflator relative to the old one is 1.28 ÷ 1.12 = 1.142857. Hence its growth is (1.142857 − 1) × 100 ≈ 14.29%, so option B is correct. Simply subtracting 12 from 28 gives 16%, only a rough shortcut, not the exact rate.

Correct answer: B. 5.56 प्रतिशत की कमी

Explanation: Use the deflator ratio, nominal GDP divided by real GDP, and express the declines as multipliers. The new ratio relative to the old one is 0.85 ÷ 0.90 = 0.9444. Thus, the deflator becomes 94.44% of its former value and falls by 100 − 94.44 = 5.56%. Therefore, option B is correct. A 5% fall is only the simple difference between the rates and is not exact.

Correct answer: A. 8 प्रतिशत की कमी

Explanation: The GDP deflator is proportional to nominal GDP divided by real GDP. After the changes, its relative value is 1.15 ÷ 1.25 = 0.92. Therefore, it becomes 92% of the original level and declines by 8%. Option A is correct. Subtracting 25% from 15% gives a 10% fall, but that shortcut ignores the ratio structure; the two growth rates must be applied as multipliers.

Correct answer: B. 25 प्रतिशत

Explanation: Since the GDP deflator equals nominal GDP divided by real GDP, use the post-growth multipliers 1.75 and 1.40. The deflator changes by 1.75 ÷ 1.40 = 1.25, meaning it becomes 125% of its initial value. Its rise is therefore 25%. Option B is correct. The tempting 35% answer subtracts the two growth rates, but direct subtraction is not valid when the required measure is a ratio.

Correct answer: B. 20 प्रतिशत

Explanation: The deflator is the ratio of nominal GDP to real GDP. After the declines, nominal GDP is 0.84 of its original level and real GDP is 0.70 of its original level. The deflator ratio is therefore 0.84 ÷ 0.70 = 1.20, so the deflator rises by exactly 20%. Option B is correct. The 14% difference between the fall rates is not the exact change because the denominator, real GDP, also changes.

Correct answer: C. 33.33 प्रतिशत

Explanation: The GDP deflator equals nominal GDP divided by real GDP. With nominal GDP unchanged, its multiplier is 1, while real GDP becomes 1.50 times its original value. Thus, the new deflator is 1 ÷ 1.50 = 0.6667 of the old one. The decline is (1 − 0.6667) × 100 ≈ 33.33%, so option C is correct. A 50% real increase does not cause a 50% deflator fall because the measure is a ratio.

Correct answer: B. 62.5

Explanation: Let nominal GDP be N. Real GDP is 60% higher, so real GDP = 1.60N. The GDP deflator is (N ÷ 1.60N) × 100 = (1 ÷ 1.60) × 100 = 62.5. Therefore option B is correct. Option D incorrectly uses 160 directly, confusing the real-to-nominal ratio with the nominal-to-real ratio required by the deflator formula.

Correct answer: A. CPI may include imports while the deflator is based on domestic production

Explanation: The CPI measures the cost of a consumer basket purchased by households, and that basket can include imported goods. The GDP deflator instead covers domestically produced final goods and services, whether bought by households, firms or government, and excludes imports from domestic output. Therefore rising import prices can raise CPI without directly raising the GDP deflator. Option A states this distinction; the other options are false.

Correct answer: A. From the fall in domestic equipment prices

Explanation: The GDP deflator covers prices of final goods and services produced within the domestic economy. Imported medical equipment is not part of domestic GDP, so its price rise has no direct weight in this deflator, although it could affect other indices such as CPI. The fall in the price of domestically produced equipment is therefore the relevant direct effect. Hence option A is correct.