GDP Deflator

The GDP Deflator determines the overall increase in prices for goods consumed and produced in a given economy.

The base value for GDP Deflator is 100. At a value of 100, the prices for goods consumed and produced did not change.

Scenario: Assuming the base year is Year 1, calculate the GDP Deflator for Year 3.

Year 1Year 2Year 3
Px $4$6$8
Py $8$12$10
Qx 81215
Qy 6107

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

Nominal GDP = $190
Real GDP = $116

GDP Deflator = ($190 / $116) x 100
GDP Deflator = (1.64) x 100
GDP Deflator = 164

Answer: Our GDP Deflator of 164 indicates that between Years 1-3, the prices of goods consumed and produced rose 64%.

Remember... the base of GDP Deflator is 100!

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