Macro

National Income

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A country in the year 2000 produced 100 units of bread at price of Rs 10 per bread. GDP at current price was Rs 1,000. In 2001 the same country produced 110 units of bread at price Rs 15 per bread. What is the GDP deflator?

50 percent.

150 percent.

10 percent.

100 percent.

✅ Correct Option: 2

Option 1: 50 percent -> This would imply deflation, but prices increased from Rs 10 to Rs 15.

Option 2: 150 percent -> Nominal GDP 2001 = 110 × 15 = Rs 1,650; Real GDP 2001 = 110 × 10 = Rs 1,100; GDP Deflator = (1,650/1,100) × 100 = 150%.

Option 3: 10 percent -> This represents the quantity growth, not the price level change.

Option 4: 100 percent -> This would mean no change in price level, but prices rose significantly.

Hence, Option 2: 150 percent -> The GDP deflator measures the price level change. Nominal GDP 2001 = 110 units × Rs 15 = Rs 1,650. Real GDP 2001 (using base year 2000 prices) = 110 units × Rs 10 = Rs 1,100. GDP Deflator = (Nominal GDP/Real GDP) × 100 = (1,650/1,100) × 100 = 150%. This indicates that the price level increased by 50% from the base year. -> correct

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A country in the year 2000 produced 100 units of bread at price of Rs 10 per bread. GDP at current price was Rs 1,000. In 2001 the same country produced 110 units of bread at price Rs 15 per bread. What is the GDP deflator?

Solution

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