11. The following table shows the GDP deflator for the years 1971-77 and 2006-12

Question

11. The following table shows the GDP deflator for the years 1971-77 and 2006-12, based on 2010 100. 1971 1972 1973 1974 1975 1976 GDP deflato 100 10.8 11.6 13.3 16.9 19.522.2 Inflation rate 2006 2007 2008 2009 2010 2011 2012 GDP deflato 89.9 91.9 94.9 97.0 00.0 102.3 104.0 Inflation rate (a) What is measured by the GDP deflator and how does it differ from the consumer prices index (CPI)? (3 points) (b) What role does thc GDP defator play in the AD AS framework? (2 points) (c) Using the GDP deflator figures, work out the rate of inflation for cach year from 1972 to 1977 and from 2007 to 2012. How do the rates of inflation in these two periods compare? (3 points)

Explanation / Answer

In economics, GDP deflator is the measure of the level of all prices of all new domestically produced final goods and services in the economy.

There is difference between GDP deflator and Consumer Price Index includes anything bought by consumer including foreign goods.

The second difference is GDP deflator is the measure of prices of all goods and services while the CPI( Consumer Price Index) is a measure of only goods bought by consumers.

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