If the GDP deflator is 85 then how much lower is the current average price level than the base year?
Answer and explanation
Correct answer: 15 percent
The GDP deflator is a price index whose base-year value is 100. A deflator of 85 means the current average price level is 85% of the base-year level. The decrease is therefore 100 − 85 = 15%. Hence, Option C is correct. The value 85 is the index level, not the percentage decrease; the comparison must be made with the base value of 100.
Frequently asked questions
What is the correct answer to this question?
15 percent
Why is this the correct answer?
The GDP deflator is a price index whose base-year value is 100. A deflator of 85 means the current average price level is 85% of the base-year level. The decrease is therefore 100 − 85 = 15%. Hence, Option C is correct. The value 85 is the index level, not the percentage decrease; the comparison must be made with the base value of 100.
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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