GDP deflator

Definition

GDP deflator is an economic metric that converts output measured at current prices into constant-dollar GDP. It reflects the level of prices of all new, domestically produced, final goods and services in an economy.

5 Must Know Facts For Your Next Test

1. GDP deflator is calculated as (Nominal GDP/Real GDP) * 100.
2. It measures price inflation or deflation with respect to a specific base year.
3. Unlike the Consumer Price Index (CPI), the GDP deflator includes all goods and services produced domestically.
4. A rising GDP deflator indicates increasing prices, signaling inflation.
5. It adjusts nominal GDP to reflect changes in price levels.

Review Questions

• How is the GDP deflator calculated?
• What does a rising GDP deflator signify about an economy?
• How does the GDP deflator differ from the Consumer Price Index (CPI)?

Related terms

Nominal GDP:

The market value of all finished goods and services produced within a country in a specific period, measured using current prices.

Real GDP:

The market value of all finished goods and services produced within a country in a specific period, adjusted for inflation.

Consumer Price Index (CPI): A measure that examines the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.