Which of the following statements is/are correct? 1. GDP deflator ca

Which of the following statements is/are correct?

1. GDP deflator captures the average price of an unchanging basket of commodities that constitutes the GDP of the country.
2. GDP deflator can be used to measure the real GDP of the economy but not the inflation rate.

Select the correct answer using the code given below.

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option4″]

This question was previously asked in

UPSC CDS-1 – 2024

D) Neither 1 nor 2

– Statement 1 is incorrect. The GDP deflator is a price index that reflects the prices of all domestically produced goods and services in GDP. It does *not* use an unchanging basket of commodities; the basket of goods and services included in the GDP changes year to year based on production patterns. This contrasts with indices like the Consumer Price Index (CPI), which uses a fixed basket.
– Statement 2 is incorrect. The GDP deflator is indeed used to calculate Real GDP from Nominal GDP (Real GDP = Nominal GDP / GDP Deflator * 100). However, it is also commonly used as a measure of the economy’s overall inflation rate. Inflation rate between two periods can be calculated from the percentage change in the GDP deflator.

– The GDP deflator is a Paasche index because it uses the current year’s quantities of goods and services as weights, reflecting changes in the composition of output. The CPI is a Laspeyres index as it uses a base year’s quantities as weights.

More similar MCQ questions for Exam preparation:-