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Define GDP Deflator:

When the prices are going to increase the inflation rate is also going to increase. This is in short the GDP Deflator. Its work is only to calculate the rate at which the inflation in the economy is increasing.

It takes into consideration all the goods and services that are produced nationally in the economy. Based on the consumption the GDP Deflator is calculated. It gives an idea of the total value of the goods and services produced in the country.

Derivation of GDP Deflator

GDP Deflator = Nominal GDP     X 100                           

                              Real GDP

By 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 reason for the base year to be taken as 100 is because in that year the inflation was considered as maximum in that year. It gives a rough idea about the prices of the goods and services, whether they were increased or decreased. Thus it becomes easy to calculate the Inflation.



However it should not be assumed that GDP Deflator gives an idea about the standard of living of the people. It is just related to inflation or deflation. But GDP Deflator is a better indicator of truth when compared to the Consumer Price Index.


The results shown by GDP Deflator is more realistic compared to the GDP Deflator?

Analysis of the results for GDP Deflator Homework Help

Since GDP is the indicator of the inflation or deflation it is very important in government calculation. A small difference can change the scenario of Surplus or Deficit and can project huge amount of difference in money, which may run into thousands of crore.

The result that is arrived is based on the data which is collected. Hence the data collection officers should keep in mind the importance of the results which has its impact in almost everything in the country.

GDP is the most important analysis as it gives not a rough but an exact idea about the contribution that every section is making towards the progress of the nation.