Question

What is the GDP deflator and how could be used to measure inflation

Answer 1

Refer to the image solution.

GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestic goods and services in an economy. The GDP deflator regularly updates the type of goods and services used to measure the implicit price deflator - depending on which goods are being bought.

GDP deflator= Nominal GDP/Real GDP*100

If the GDP deflator for 2019 is 105.1 and the base year is 2009, this means that the price level has risen 5.1% since 2009. Another way to say it is that the 2009 dollar could buy 5.1% more than the 2019 dollar.