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What is GDP Deflator?
The GDP deflator is a measure of the change in the annual domestic production due to change in price rates in the economy and hence it is a measure of the change in nominal GDP and real GDP during a particular year calculated by dividing the Nominal GDP with the real GDP and multiplying the resultant with 100.
It’s a measure of price inflation/deflation with respect to the specific base year and is not based on a fixed basket of goods or services but is allowed to be modified on a yearly basis depending on consumption and investment patterns.
The GDP deflator of the base year is 100.
Formula of GDP Deflator
What is the Nominal GDP?
Nominal GDP (Gross Domestic Product) is the calculation of annual economic production of the entire country’s population at current market price of goods and services generated by four main sources which include capital appreciation on Land, wages of Labor, interest on Capital investment and profits earned by an entrepreneur that is calculated only on finished goods and services.
What is Real GDP?
Real GDP can be defined as an inflation-adjusted measure which shall reflect the value of services and goods that are produced in a given single year by an economy which can be expressed in the prices of the base year, and that can be referred to as “constant dollar GDP”, “inflation corrected GDP”. Below given is the formula to calculate real GDP.
Deflation MeaningDeflation is defined as an economic condition whereby the prices of goods and services go down constantly with the inflation rate turning negative. The situation generally emerges from the contraction of the money supply in the economy.
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