What Factors Affect the GDP Deflator?

(GDP Deflator), also known as the GDP reduction index, refers to the increase in GDP (current price GDP) without price changes and the increase in GDP [excluding constant-price GDP (constant-price GDP) or real GDP] without price changes. Quotient (also the ratio of nominal GDP to real GDP). The index is also used to calculate components of GDP, such as personal consumption expenditures. Its calculation basis is broader than the CPI, covering all goods and services. In addition to consumption, it also includes means of production and capital, export goods and services. Therefore, this index can more accurately reflect the general price level trend, and is the most macro measure of the price level. ^[1] If the current prices are used to calculate the value of final products and services, the resulting GDP is called Nominal GDP. The term "nominal" means that the current price is used to calculate the value; economic indicators that use artificially prescribed prices for the base year (currently 1996) are more reliable. GDP calculated at constant prices is called real GDP. The term "true" means calculated at a constant price. The value of products and services measured by real quantities will only change because of changes in real quantities, and not because of changes in prices. To give a simple example: If your nominal income was $ 30,000 in 1996, and your nominal income in 2001 became $ 60,000. If all prices doubled from 1996 to 2001, in fact your standard of living has not changed.

GDP deflator

If the current price is used to calculate the value of final products and services, the resulting GDP is called Nominal GDP. The term "nominal" means calculating the value at current prices;

As shown in the table, suppose an economy produces three products: rice, pork, and cotton cloth. According to the quantity and price of products produced in 1978 and 1988, the nominal GDP in 1988 is 2940 yuan, and the nominal GDP in 1978 is 720 yuan.

Table price and output of three products:

project	1978 price	1988 price	1988 production
Rice / kg	0.4	2.2	200
Pork / kg	2.8	16	100
Cotton / m	2.4	6	150

The calculated price adjustment index of GDP from 1978 to 1988 was 408.3%. If 1978 is designated as the base year, it means that the GDP price adjustment index of 1978 is 100%, which indicates that the price-weighted average level of output in 1988 increased by 3.083 times or 1978 by 308.3%. ^[1]

The growth of nominal GDP is generally faster than the growth of real GDP. The growth of nominal GDP can come from

It should be noted that although the nominal GDP and the real GDP have obvious differences in the economic sense, they are the same statistically. The results published by government statistics departments are mostly nominal GDP, and most economists use real GDP to explain various economic problems when conducting economic analysis. The GDP deflator can more accurately reflect the general price level trend, and is the most macro measure of the price level. ^[2]