1. What is GDP Deflator?

The GDP deflator is a measure of price inflation/deflation in an economy. It reflects the ratio of nominal GDP to real GDP, showing how much a change in GDP relies on changes in the price level.

2. How Does the Calculator Work?

The calculator uses the GDP Deflator formula:

Where:

• \( \text{Nominal GDP} \) — GDP measured at current prices
• \( \text{Real GDP} \) — GDP measured at constant prices (base year)

Explanation: The deflator shows the price level of all domestically produced final goods and services in an economy.

3. Importance of GDP Deflator

Details: The GDP deflator is important because it provides a broad measure of inflation, unlike CPI which only measures consumer prices. It's used to convert nominal GDP to real GDP.

4. Using the Calculator

Tips: Enter both nominal and real GDP values in the same currency units. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between GDP deflator and CPI?
A: GDP deflator covers all goods and services produced domestically, while CPI covers only consumer goods and services purchased by households.

Q2: What does a GDP deflator of 100 mean?
A: A value of 100 means the current price level is equal to the base year price level. Values above 100 indicate inflation, below 100 indicate deflation.

Q3: How often is GDP deflator calculated?
A: Typically quarterly, along with GDP reports from government statistical agencies.

Q4: Why is GDP deflator considered a better inflation measure?
A: It automatically adjusts for changes in consumption patterns and new products, unlike fixed-basket measures like CPI.

Q5: Can GDP deflator be negative?
A: No, since both nominal and real GDP are positive values, the deflator will always be positive.