If the GDP deflator is falling, what does it generally indicate?
Answer and explanation
Correct answer: Deflation
The GDP deflator measures the price level associated with current domestic production. If it falls, the average prices of domestically produced final goods and services are generally declining relative to the base year, which indicates deflation or disinflationary pressure. A rise in real output concerns quantities, not necessarily prices, while population growth does not determine the deflator.
Frequently asked questions
What is the correct answer to this question?
Deflation
Why is this the correct answer?
The GDP deflator measures the price level associated with current domestic production. If it falls, the average prices of domestically produced final goods and services are generally declining relative to the base year, which indicates deflation or disinflationary pressure. A rise in real output concerns quantities, not necessarily prices, while population growth does not determine the deflator.
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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