Questioning the GDP Deflator: Measuring Average Price Output?

AI Thread Summary
The discussion centers on the GDP deflator and its role in measuring average prices. A participant questions the statement from a macroeconomics textbook that claims the GDP deflator represents the average price of output, seeking clarification on how it achieves this given that it measures the ratio between nominal GDP and real GDP. Another participant responds by clarifying that the GDP deflator is defined as the ratio of current year prices multiplied by previous year quantities to previous year prices multiplied by the same quantities, emphasizing that it reflects the change in price levels from one year to the next rather than providing a direct measure of average prices.
jackylaucf
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I would like to raise a question about GDP deflator. In my macroeconomics textbook, there is a statement like this: "GDP deflator gives the average price of output". I wonder why the deflator will give the average price as it only measure the ratio between nominal GDP and real GDP...
Thanks for help!
 
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jackylaucf said:
I would like to raise a question about GDP deflator. In my macroeconomics textbook, there is a statement like this: "GDP deflator gives the average price of output". I wonder why the deflator will give the average price as it only measure the ratio between nominal GDP and real GDP...
Thanks for help!

That's not the definition of deflator, the definition is the Prices_year_n*Quantities_year_(n-1)/(Prices_year_(n-1)*Quantities_year_(n-1) thus giving the ratio between prices of an year n and the prices of the year n-1.
 
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