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GDP Deflator - Economics Assignment Help

By Anonymous
While the prices are going to increase the inflation rate is as well going to increase. This is in short the GDP Deflator. Its work is just to compute the rate at which the inflation in the economy is increasing.
It takes into concern all the goods and services that are generated nationally in the economy. Relies on the consumption the GDP Deflator is calculated. It provides an idea of the total value of the goods and services generated in the country.

Derivation of GDP Deflator

GDP Deflator = (Nominal GDP / Real GDP) X 100                          

Through using this formula we can come to know the real GDP of the economy. In calculating the GDP Deflator the base year is taken as 100.

The main reason for the base year to be taken as 100 is as in that year the inflation was considered as maximum in that year. It provides a rough idea about the prices of the goods and services, if they were increased or decreased. So it becomes simple to calculate the Inflation.

Assumption

Though, it should not be assumed that GDP Deflator provides an idea about the standard of living of the people. It is simply related to inflation or deflation. But GDP Deflator is a better pointer of truth when compared to the Consumer Price Index.

The results illustrated by GDP Deflator are more realistic compared to the GDP Deflator?

Analysis of the results

As GDP is the indicator of the inflation or deflation it is vital in government calculation. A small variation can change the scenario of Surplus or Deficit and can project enormous amount of dissimilarity in money, which may run into thousands of crore.

The result which is arrived is relies on the data which is collected. Therefore the data collection officers should keep in mind the significance of the results which has its impact in almost everything in the country.

Gross Domestic Product is the most significant analysis as it gives not a rough but an exact idea about the contribution that each section is making in the direction of the progress of the nation.



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