If the deflator is continuously falling, what does it generally indicate?
Answer and explanation
Correct answer: Deflation
The GDP deflator measures the average price level of domestically produced final goods and services, using the relation Nominal GDP divided by Real GDP, multiplied by 100. If it continuously falls, prices are generally declining relative to the base year, indicating deflation. Inflation would normally make the deflator rise, while population growth and exports do not define this movement.
Frequently asked questions
What is the correct answer to this question?
Deflation
Why is this the correct answer?
The GDP deflator measures the average price level of domestically produced final goods and services, using the relation Nominal GDP divided by Real GDP, multiplied by 100. If it continuously falls, prices are generally declining relative to the base year, indicating deflation. Inflation would normally make the deflator rise, while population growth and exports do not define this movement.
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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