The value of the nominal GNP of an economy was Rs 5000 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 6000 crores. What is the value of the GNP deflator of the year.
The value of the nominal GNP of an economy was Rs 5000 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 6000 crores. What is the value of the GNP deflator of the year.
Solution
Option 1 -> 120 - This would incorrectly suggest nominal GNP is higher than real GNP.
Option 2 -> 83.33 - Calculated as (Nominal GNP/Real GNP) × 100 = (5000/6000) × 100.
Option 3 -> 100 - Would mean nominal and real GNP are equal, which is not the case here.
Option 4 -> 125 - This incorrectly inverts the ratio calculation.
Hence, Option 2: 83.33 -> The GNP deflator formula is (Nominal GNP/Real GNP) × 100. Substituting the values: (5000/6000) × 100 = 83.33. A deflator below 100 indicates that prices in the current year are lower than the base year prices, or that the economy has experienced deflation relative to the base year. -> correct
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