GDP Deflator

Correct answer: A. Five-sixteenths

Explanation: By definition, the deflator equals (nominal GDP ÷ real GDP) × 100. Therefore a deflator of 31.25 implies nominal GDP ÷ real GDP = 31.25 ÷ 100 = 0.3125. Converting the decimal, 0.3125 = 3125/10000 = 5/16. Thus nominal GDP is five-sixteenths of real GDP. The other fractions do not equal 0.3125.

Correct answer: C. 225

Explanation: A price that is 125% above the base-year price equals 100% + 125% = 225% of the base-year price, or 2.25 times that price. Since the quantity is identical in both valuations, quantity cancels from the numerator and denominator. The deflator is therefore (current-price value ÷ base-price value) × 100 = 2.25 × 100 = 225. The figure 125 represents only the increase, not the full index.

Correct answer: B. 55

Explanation: Take the base-year price as 100. A 45% decrease makes the current price 100 − 45 = 55. Because the quantity is the same in both valuations, the value ratio is simply 55/100. Multiplying by 100 for the index gives a deflator of 55. Option 45 is only the percentage fall, 100 would mean no price change, and 145 would represent a 45% increase rather than a decrease.

Correct answer: A. It will rise in the same proportion as the deflator

Explanation: The governing relationship is GDP deflator = (nominal GDP ÷ real GDP) × 100. If real GDP does not change, a rise in the deflator can occur only when nominal GDP rises proportionately. Thus option A is correct. A fall, no change, or zero nominal GDP would not produce a higher deflator when real GDP is positive and constant.

Correct answer: A. It falls by 18 percent

Explanation: Using the formula nominal GDP = real GDP × deflator ÷ 100, an unchanged deflator means nominal GDP and real GDP move in the same proportion. Therefore, when real GDP decreases by 18 percent, nominal GDP also decreases by 18 percent. Option A is correct; the other choices reverse, ignore, or exaggerate the proportional effect.

Correct answer: A. It remains unchanged

Explanation: The GDP deflator measures the price level of domestically produced final goods and services: (Nominal GDP ÷ Real GDP) × 100. Initially, (3,200 ÷ 2,560) × 100 = 125. Finally, (4,000 ÷ 3,200) × 100 = 125. Both nominal and real GDP increase by 25%, so their ratio and the deflator remain unchanged. Therefore, option A is correct; the other choices incorrectly treat the GDP increase as a change in the price index.

Correct answer: D. 150

Explanation: The new GDP deflator is calculated as (nominal GDP ÷ real GDP) × 100. Substituting the final values gives (2,880 ÷ 1,920) × 100 = 1.5 × 100 = 150. Therefore option D is correct. The nominal increase combined with the real-output decline makes the price-level ratio higher, ruling out the lower alternatives.

Correct answer: B. 25 percent

Explanation: Inflation based on the deflator is calculated as [(final index − initial index) ÷ initial index] × 100. Hence [(150 − 120) ÷ 120] × 100 = (30 ÷ 120) × 100 = 25 percent. Option B is correct. The 30-point increase is an index-point change, not a 30 percent inflation rate.

Correct answer: A. Adjust nominal GDP using the GDP deflator

Explanation: Removing the price effect is called deflation or conversion from nominal to real GDP. The relationship is real GDP = nominal GDP ÷ (GDP deflator ÷ 100). Thus an analyst should adjust nominal GDP using the deflator, making option A correct. Adding the index, multiplying by population, or subtracting imports does not isolate the price effect.

Correct answer: C. 140

Explanation: The GDP deflator is calculated as (nominal GDP ÷ real GDP) × 100. Substituting the given values gives (3,150 ÷ 2,250) × 100 = 1.4 × 100 = 140. Thus option C is correct. A deflator of 140 indicates that the relevant price level is 40 percent above the base-year level, assuming the base year has an index of 100.

Correct answer: C. 126

Explanation: Apply the standard formula: GDP deflator = (nominal GDP ÷ real GDP) × 100. Therefore, (₹3,024 crore ÷ ₹2,400 crore) × 100 = 1.26 × 100 = 126. The crore units cancel in the ratio, so the index is 126. Hence option C is correct; 120, 124, and 130 do not result from the given division.

Correct answer: C. ₹3,630 crore

Explanation: Use nominal GDP = real GDP × (GDP deflator ÷ 100). Substituting the values gives ₹2,750 crore × (132 ÷ 100) = ₹2,750 × 1.32 crore = ₹3,630 crore. Therefore option C is correct. The deflator must be converted from an index number to a multiplier before multiplying real GDP.

Correct answer: C. ₹3,000 crore

Explanation: The governing relationship is Real GDP = (Nominal GDP ÷ GDP deflator) × 100, when the deflator is expressed with a base of 100. Substituting the values gives (3,570 ÷ 119) × 100 = 30 × 100 = ₹3,000 crore. Therefore option C is correct. The other options result from incorrect division or from failing to adjust nominal GDP fully for the price-level index.

Correct answer: B. 10 percent

Explanation: A GDP deflator is a price-level index, so inflation is measured by the percentage change in the index: [(new deflator − old deflator) ÷ old deflator] × 100. Here the change is 184.8 − 168 = 16.8, and 16.8 ÷ 168 × 100 = 10 percent. Therefore option B is correct. The value 16.8 is the index-point increase, not the percentage inflation rate.

Correct answer: B. 15 percent

Explanation: Because the deflator represents the price level, its percentage fall measures the corresponding price-level decline. The index decreases by 240 − 204 = 36 points. Relative to the initial value, the decline is (36 ÷ 240) × 100 = 15 percent. Therefore option B is correct. Option D confuses the absolute index-point fall of 36 with the percentage fall, while the other percentages use an incorrect base.

Correct answer: C. 28 percent rise

Explanation: The GDP deflator is calculated as (nominal GDP ÷ real GDP) × 100. If real GDP is unchanged, its quantity and factor remain constant, so the entire 28 percent increase in nominal GDP reflects a rise in the price level. Consequently, the deflator also rises by 28 percent. Option C is correct; options A, B, and D apply arbitrary reductions or doubling rather than the governing ratio.

Correct answer: B. 122.2

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Substituting the given values gives (3,128 ÷ 2,560) × 100 = 122.1875, which rounds to approximately 122.2. Therefore, option B is correct. Options A, C and D do not result from the stated ratio and either understate or overstate the calculated price index.

Correct answer: C. 25 percent

Explanation: Use the percentage-change formula: (new value − old value) ÷ old value × 100. Here the index-point increase is 90 − 72 = 18, while the original base is 72. Thus, 18 ÷ 72 × 100 = 25%. Option A confuses an absolute index-point increase with a percentage increase, and option D treats the final index as the increase. Hence option C is correct.

Correct answer: B. 25 percent

Explanation: The percentage decline must be measured relative to the original deflator, 320. The fall is 320 − 240 = 80 index points, so the proportional decline is 80 ÷ 320 × 100 = 25%. The negative signed change would be −25%, but the question asks for the size of the decline. Options A and C use incorrect denominators or arithmetic, while D mistakes points for percent.

Correct answer: C. 136.5

Explanation: The GDP deflator formula is nominal GDP divided by real GDP, multiplied by 100: Deflator = (Nominal GDP ÷ Real GDP) × 100. Substituting the index values gives (218.4 ÷ 160) × 100 = 136.5. Thus option C is correct. Dividing without multiplying by 100 would give only 1.365, while the other choices result from inaccurate rounding or arithmetic.

Correct answer: C. 183.75

Explanation: Rearrange the deflator identity: Deflator = (Nominal GDP index ÷ Real GDP index) × 100. Therefore, Nominal GDP index = Deflator × Real GDP index ÷ 100. Substitution gives 147 × 125 ÷ 100 = 183.75. Option C is correct. Multiplying without dividing by 100 gives an incorrectly scaled value, and the other options do not satisfy the identity when checked.

Correct answer: C. 140

Explanation: The governing relationship is Real GDP index = (Nominal GDP index ÷ GDP deflator index) × 100. Substituting the values gives (210 ÷ 150) × 100 = 1.4 × 100 = 140. Therefore, option C is correct. The deflator removes the price-level effect from nominal GDP; the other options result from incorrect division or rounding.

Correct answer: B. 25 percent

Explanation: A deflator measures the price level relative to the base period. The percentage increase must be calculated relative to the old value, not merely by subtracting index points: [(160 − 128) ÷ 128] × 100 = (32 ÷ 128) × 100 = 25%. Thus option B is correct. The figure 32 is the index-point difference, not the percentage increase.

Correct answer: B. It must fall

Explanation: The governing identity is Real GDP = Nominal GDP ÷ GDP deflator. If nominal GDP, the numerator, decreases and the deflator, the denominator, increases, the ratio must decrease, assuming positive economic values. Therefore real GDP necessarily falls, so option B is correct. The other choices ignore the simultaneous movement of both components or claim uncertainty where the direction is determined.

Correct answer: A. It must rise

Explanation: Real GDP equals nominal GDP divided by the GDP deflator. When nominal GDP, the numerator, increases and the deflator, the denominator, decreases, the ratio must rise, provided the values are positive. Thus real GDP necessarily increases and option A is correct. A constant or falling result would require a different movement in the numerator or denominator, not the changes stated here.