ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In general, calculating real GDP is done by dividing nominal GDP by the GDP deflator (R). For example, if an economy’s prices have increased by 1% since the base year, the deflating number is 1.01. If nominal GDP was $1 million, then real GDP is calculated as $1, 000, 000 / 1.01, or $990, 099.

Detailed explanation-2: -The GDP deflator is a good indicator of the changes in the overall price level relative to the base year. To calculate the GDP deflator, divide nominal GDP by real GDP and multiply by 100.

Detailed explanation-3: -Since the price index in the base year always has a value of 100 (by definition), nominal and real GDP are always the same in the base year.

Detailed explanation-4: -Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year; the GDP deflator of the base year itself is equal to 100.