GDP Deflator
A broad price index covering all goods in GDP, not just a consumer basket.
Formula
Variables
Example
$660B / $600B × 100 = 110
How it works
The GDP deflator compares the value of all final goods and services produced in an economy at current prices with the same output valued at base-year prices. Because real GDP removes the effect of inflation by holding prices constant, the ratio tells you how much the overall price level has changed. Multiplying by 100 turns that ratio into an index number, so 100 means no change from the base year, above 100 means prices have risen, and below 100 means prices have fallen.
When to use it
Use this when you need a measure of economy-wide inflation based on the goods and services actually produced within a country. It is especially useful for converting nominal GDP into real GDP or for comparing price changes across different years.
Worked example, step by step
Nominal GDP = $2.40 trillion Real GDP = $2.25 trillion Deflator = (Nominal GDP / Real GDP) × 100 Deflator = (2.40 / 2.25) × 100 Deflator = 1.0667 × 100 Deflator = 106.67 Final answer: GDP deflator = 106.67
Common mistakes to avoid
- Using consumer prices only instead of the prices of all final GDP goods and services
- Forgetting to multiply the ratio by 100
- Reversing the formula and dividing real GDP by nominal GDP
Did You Know?
Unlike the CPI’s fixed basket, the deflator automatically reflects whatever the economy actually produces.
Share this formula
More in Economics
View allGDP (Expenditure Approach)
BasicNational output measured as total spending by households, firms, government and net exports.
GDP Growth Rate
BasicThe percentage change in real output between two periods.
Inflation Rate
BasicThe rate at which the general price level rises over time.
Unemployment Rate
BasicThe share of the labor force that is jobless and actively seeking work.
Real GDP
IntermediateOutput adjusted for inflation, so growth reflects real production, not rising prices.
Price Elasticity of Demand
IntermediateHow responsive quantity demanded is to a change in price.