A good's current price is 20 percent below its base-year price. With the same current quantity, what is its deflator?
Answer and explanation
Correct answer: 80
Assume the base-year price is 100. A fall of 20% reduces the current price to 80. Because the quantity is the same in both valuations, the quantity cancels out. The deflator is therefore (80 ÷ 100) × 100 = 80. Option 100 would indicate unchanged prices; 20 is only the percentage fall, and 120 indicates a 20% rise rather than a fall.
Frequently asked questions
What is the correct answer to this question?
80
Why is this the correct answer?
Assume the base-year price is 100. A fall of 20% reduces the current price to 80. Because the quantity is the same in both valuations, the quantity cancels out. The deflator is therefore (80 ÷ 100) × 100 = 80. Option 100 would indicate unchanged prices; 20 is only the percentage fall, and 120 indicates a 20% rise rather than a fall.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP Deflator.
Student feedback
Was this question useful?
👍 0 Helpful 👎 0 Not helpful
Yes 0% No 0%
0 responsesStudent Reviews
No published reviews yet.
