The GDP deflator is defined as the ratio of nominal GDP to real GDP, specifically calculated using the formula Prices_year_n * Quantities_year_(n-1) / (Prices_year_(n-1) * Quantities_year_(n-1)). This calculation provides a measure of the average price level of output in an economy over time. The confusion arises from the interpretation of the deflator as merely a ratio, but it effectively reflects changes in price levels between two periods, thus serving as an important economic indicator.
PREREQUISITESEconomists, macroeconomic students, policy analysts, and anyone interested in understanding economic indicators and their implications on economic performance.
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!