A good's current price is 45% below its base-year price. With the same current quantity, what is its deflator?
Answer and explanation
Correct answer: 55
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.
Frequently asked questions
What is the correct answer to this question?
55
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP Deflator.
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