GDP Deflator
1 Quick Explanation 1–3 min
The GDP deflator measures the overall price level in an economy.
It converts nominal GDP into real GDP.
2 Detailed Notes
Definition
Definition
GDP Deflator is the ratio of nominal GDP to real GDP multiplied by 100. It shows how much prices have risen from the base year to the current year.
Formula
Formula
GDP Deflator = (Nominal GDP ÷ Real GDP) × 100Deflator = 100 means prices unchanged; >100 means inflation; <100 means deflation since base year.
Comparison
Difference from CPI
| Basis | GDP Deflator | CPI (Consumer Price Index) |
|---|---|---|
| Goods covered | All final goods & services | Only consumer goods basket |
| Base | Fixed base year | Fixed basket & base year |
| Used for | Economy-wide price level | Cost of living / inflation for households |
Example
Numerical style
Nominal GDP = ₹24,000 crore, Real GDP = ₹20,000 crore. Deflator = (24000/20000) × 100 = 120 → prices 20% above base year.
In One Minute
GDP Deflator = (Nominal GDP ÷ Real GDP) × 100. It converts nominal to real and measures the economy-wide price level.
Important for Exam
- ⭐ 1-mark: formula for deflator.
- ⭐ Numerical: find real GDP given nominal & deflator.
- ⭐ Deflator vs CPI difference (3 marks).
- ⭐ Interpretation: 120 means 20% inflation since base year.
Watch & Learn
Watch on YouTubeNational income - Real and Nominal GDP - Class 12 -
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by Rajat Arora
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