CA Foundation · Business Economics · Determination of National Income
The GDP deflator for an economy is best described as the ratio of:
The GDP deflator equals nominal GDP divided by real GDP, multiplied by 100. It measures the average price level of all domestically produced output relative to the base year. Inverting the ratio or comparing GDP across years measures something else, such as output growth.
- AReal GDP to nominal GDP, multiplied by 100
- BNominal GDP to real GDP, multiplied by 100Correct
- CNominal GDP of the current year to nominal GDP of the base year, multiplied by 100
- DReal GDP of the current year to real GDP of the base year, multiplied by 100
Explanation
The GDP deflator = (Nominal GDP / Real GDP) × 100. It captures price changes across all goods and services produced domestically. Option A inverts the ratio. Options C and D compare GDP across years, which gives growth in nominal or real output, not a price index.
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