{"id":301,"date":"2024-05-30T03:23:12","date_gmt":"2024-05-30T03:23:12","guid":{"rendered":"https:\/\/course.oeru.org\/maec102\/?page_id=301"},"modified":"2024-05-30T03:23:12","modified_gmt":"2024-05-30T03:23:12","slug":"the-gdp-deflator","status":"publish","type":"page","link":"https:\/\/course.oeru.org\/maec102\/learning-pathways\/the-macroeconomic-model\/the-gdp-deflator\/","title":{"rendered":"The GDP deflator"},"content":{"rendered":"<div id=\"content\" class=\"mw-body container\" role=\"main\">\n<div class=\"row\">\n<div class=\"col-md-12\">\n<div class=\"panel\">\n<div class=\"panel-body\">\n<div id=\"bodyContent\">\n<div id=\"mw-content-text\" lang=\"en\" dir=\"ltr\" class=\"mw-content-ltr\"><div class=\"panel iDevice\">\n\t<div class=\"panel-heading idevice-heading\">\n\t\t<div>\n\t\t\t<img decoding=\"async\" class=\"pedagogicalicon\" alt=\"activity\" src=\"https:\/\/course.oeru.org\/maec102\/wp-content\/themes\/oeru_course\/idevices\/Icon_activity.png\">\n\t\t<\/div>\n\t\t<div>\n\t\t\t<h2>The GDP deflator<\/h2>\n\t\t<\/div>\n\t<\/div>\n\t<div class=\"panel-body\">\n\t\t<div class=\"col-md-12\">\n\t\t\t<\/p>\n<p>The GDP deflator is a price index that measures inflation or deflation in an economy by calculating a ratio of nominal GDP to real GDP.\n<\/p>\n<h3><span class=\"mw-headline\" id=\"Key_points\">Key points<\/span><\/h3>\n<ul>\n<li> The <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/gdp-deflator\">GDP deflator<\/a> is a measure of <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/price\">price<\/a> <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/inflation\">inflation<\/a>. It is calculated by dividing <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/nominal\">Nominal<\/a> GDP by Real GDP and then multiplying by 100.\n<\/li>\n<li> Nominal GDP is the market value of goods and services produced in an economy, unadjusted for inflation. Real GDP is nominal GDP, adjusted for inflation to reflect changes in real <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/output\">output<\/a>.\n<\/li>\n<li> Trends in the GDP deflator are similar to changes in the Consumer Price Index, which is a different way of measuring inflation.\n<\/li>\n<\/ul>\n<h3><span class=\"mw-headline\" id=\"Terms\">Terms<\/span><\/h3>\n<ul>\n<li> <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/definition\/real-gdp\/\">real GDP<\/a>: A macroeconomic measure of the value of the economy&#8217;s output adjusted for price changes (inflation or deflation).\n<\/li>\n<li> <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/definition\/gdp-deflator\/\">GDP deflator<\/a>: A measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is calculated by computing the ratio of nominal GDP to the real measure of GDP.\n<\/li>\n<li> <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/definition\/nominal-gdp\/\">nominal gdp<\/a>: A macroeconomic measure of the value of the economy&#8217;s output that is not adjusted for inflation.\n<\/li>\n<\/ul>\n<h3><span class=\"mw-headline\" id=\"The_GDP_deflator\">The GDP deflator<\/span><\/h3>\n<p>The GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is a <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/price-index\">price index<\/a> that measures price inflation or <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/deflation\">deflation<\/a>, and is calculated using nominal GDP and <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/real-gdp\">real GDP<\/a>.\n<\/p>\n<h3><span class=\"mw-headline\" id=\"Nominal_GDP_versus_Real_GDP\">Nominal GDP versus Real GDP<\/span><\/h3>\n<p>Nominal GDP, or unadjusted GDP, is the market value of all final goods produced in a geographical region, usually a country. That market value depends on the quantities of goods and services produced and their respective prices. Therefore, if prices change from one period to the next but actual output does not, nominal GDP would also change even though output remained constant.\n<\/p>\n<p>In contrast, real <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/gross-domestic-product\">gross domestic product<\/a> accounts for price changes that may have occurred due to inflation. In other words, real GDP is nominal GDP adjusted for inflation. If prices change from one period to the next but actual output does not, real GDP would be remain the same. Real GDP reflects changes in real production. If there is no inflation or deflation, nominal GDP will be the same as real GDP.\n<\/p>\n<h3><span class=\"mw-headline\" id=\"Calculating_the_GDP_deflator\">Calculating the GDP deflator<\/span><\/h3>\n<p>The GDP deflator is calculated by dividing nominal GDP by real GDP and multiplying by 100.\n<\/p>\n<p>Mathmatically it looks like:\n<\/p>\n<dl>\n<dd> <span class=\"mathjax-wrapper\">\\(\\operatorname{GDP\\ deflator} = \\frac{\\operatorname{Nominal\\ GDP}}{\\operatorname{Real\\ GDP}}\\times 100\\)<\/span>\n<\/dd>\n<\/dl>\n<h3><span class=\"mw-headline\" id=\"GDP_deflator_equation\">GDP deflator equation<\/span><\/h3>\n<p>The GDP deflator measures price inflation in an economy. It is calculated by dividing nominal GDP by real GDP and multiplying by 100.\n<\/p>\n<p>Consider a numeric example: if nominal GDP is $100,000, and real GDP is $45,000, then the GDP deflator will be 222 (GDP deflator = $100,000\/$45,000 * 100 = 222.22).\n<\/p>\n<dl>\n<dd> <span class=\"mathjax-wrapper\">\\(\\operatorname{GDP\\ deflator} = \\frac{\\operatorname{Nominal\\ GDP\\ $100,000}}{\\operatorname{Real\\ GDP\\ $45,000}}\\times 100\\)<\/span> = 222.22\n<\/dd>\n<\/dl>\n<p>In the U.S., GDP and GDP deflator are calculated by the U.S. Bureau of Economic Analysis.\n<\/p>\n<h3><span class=\"mw-headline\" id=\"Relationship_between_GDP_deflator_and_CPI\">Relationship between GDP deflator and CPI<\/span><\/h3>\n<p>Like the Consumer Price Index (CPI), the GDP deflator is a measure of price inflation\/deflation with respect to a specific base year. Similar to the CPI, the GDP deflator of the base year itself is equal to 100. Unlike the CPI, the GDP deflator is not based on a fixed basket of goods and services; the &#8220;basket&#8221; for the GDP deflator is allowed to change from year to year with people&#8217;s <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/consumption\">consumption<\/a> and <a rel=\"nofollow\" class=\"external text\" href=\"https:\/\/www.boundless.com\/economics\/definition\/investment\">investment<\/a> patterns. However, trends in the GDP deflator will be similar to trends in the CPI.\n<\/p>\n<p>\nTry it yourself, if the Nominal GDP is $550,180,000 and the Real GDP is $234,158,120 what is the GDP deflator? 234.960888821621902\n<\/p>\n<p>Do the calculation and the click to see the answer.\n<\/p>\n<p>\n<\/p>\n<p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/p>\n<p>\n<\/p>\n<div class=\"panel iDevice WEquizMultipleChoice WEquizMix\">\n\t<div class=\"panel-heading idevice-heading\">\n\t\t<div>\n\t\t\t<img decoding=\"async\" class=\"pedagogicalicon\" alt=\"assessment\" src=\"https:\/\/course.oeru.org\/maec102\/wp-content\/themes\/oeru_course\/idevices\/Icon_qmark.png\">\n\t\t<\/div>\n\t\t<div>\n\t\t\t<h2>Answer key<\/h2>\n\t\t<\/div>\n\t<\/div>\n\t<div class=\"panel-body\">\n\t\t<div class=\"col-md-12\">\n\t\t\t\n<ul>\n<li> When you&#8217;re done, check your answer here.\n<ul>\n<li> Answer key\n<ul>\n<li> The GDP deflator in this case would be 234.96\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>\n<\/p>\n<p>(<a href=\"https:\/\/wikieducator.org\/File:Comment.gif\" class=\"image\"><img loading=\"lazy\" decoding=\"async\" alt=\"Comment.gif\" src=\"\/\/wikieducator.org\/images\/d\/db\/Comment.gif\" width=\"16\" height=\"16\" class=\"img-responsive\"><\/a>:<span style=\"color: green; background-color: #F6F9ED\"> There&#8217;s a problem with the bullet lists.<\/span>)<\/p>\n<p>\n<\/p>\n<p>\n\t\t<\/div>\n\t<\/div>\n<\/div><\/p>\n<p>\n<\/p>\n<p>Source: Boundless. \u201cThe GDP Deflator.\u201d Boundless Economics. Boundless, 21 Jul. 2015. Retrieved 26 Oct. 2015 from <a rel=\"nofollow\" class=\"external free\" href=\"https:\/\/www.boundless.com\/economics\/textbooks\/boundless-economics-textbook\/measuring-output-and-income-19\/comparing-real-and-nominal-gdp-94\/the-gdp-deflator-358-12455\/\">https:\/\/www.boundless.com\/economics\/textbooks\/boundless-economics-textbook\/measuring-output-and-income-19\/comparing-real-and-nominal-gdp-94\/the-gdp-deflator-358-12455\/<\/a>\n<\/p>\n<p><!-- \nNewPP limit report\nCPU time usage: 0.032 seconds\nReal time usage: 0.039 seconds\nPreprocessor visited node count: 226\/1000000\nPreprocessor generated node count: 1262\/1000000\nPost\u2010expand include size: 14356\/2097152 bytes\nTemplate argument size: 10436\/2097152 bytes\nHighest expansion depth: 9\/40\nExpensive parser function count: 0\/100\n--><\/p>\n<p><!-- Saved in parser cache with key we_en-mw_:pcache:idhash:177068-0!*!*!!*!2!* and timestamp 20240530024645 and revision id 1043458\n -->\n<\/div>\n<div class=\"visualClear\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"row\">\n<div class=\"col-md-12\">\n<ul class=\"pager\">\n<li class=\"previous\">\n            <a href=\"\/maec102\/learning-pathways\/the-macroeconomic-model\/video-explainer-stability-of-the-economy\">\u2190 Previous<\/a>\n          <\/li>\n<li class=\"next\">\n            <a href=\"\/maec102\/learning-pathways\/the-macroeconomic-model\/classical-keynesian-controversy\">Next \u2192<\/a>\n          <\/li>\n<\/ul><\/div>\n<\/p><\/div>\n<div id=\"wenote-ids\"><script type='text\/javascript' id='wenotes-ids'>\n    var WEnotesSite = \"https:\/\/wikieducator.org\";\n    var WEnotesPath = \"\/Macroeconomics_activity_and_demand\/GDP_deflator\";\n    var WEnotesSiteID = \"0e3d258fbd36841f92259eefcd41d5e9\";\n    var WEnotesPathID = \"b0e0e01e209f6ff632987136e87c3a6b\";\n    var WEnotesIDs = { site: \"https:\/\/wikieducator.org\", path: \"\/Macroeconomics_activity_and_demand\/GDP_deflator\", site_id: \"0e3d258fbd36841f92259eefcd41d5e9\", path_id: \"b0e0e01e209f6ff632987136e87c3a6b\" };\n<\/script><\/div>\n<\/div>\n<footer><\/footer>\n","protected":false},"excerpt":{"rendered":"<p>Source: Boundless. \u201cThe GDP Deflator.\u201d Boundless Economics. Boundless, 21 Jul. 2015. Retrieved 26 Oct. 2015 from https:\/\/www.boundless.com\/economics\/textbooks\/boundless-economics-textbook\/measuring-output-and-income-19\/comparing-real-and-nominal-gdp-94\/the-gdp-deflator-358-12455\/ \u2190 Previous Next \u2192<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":293,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-301","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/pages\/301","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/comments?post=301"}],"version-history":[{"count":1,"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/pages\/301\/revisions"}],"predecessor-version":[{"id":302,"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/pages\/301\/revisions\/302"}],"up":[{"embeddable":true,"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/pages\/293"}],"wp:attachment":[{"href":"https:\/\/course.oeru.org\/maec102\/wp-json\/wp\/v2\/media?parent=301"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}