Gross Domestic Product, or GDP, is a measure of a country’s economic market value of the durable and non-durable goods and services that are produced within the country over a given time frame. It basically measures the price inflation of a country. It determines the country’s economy status and health, making it a vital measure for the nation and the entire world.
A country with a strong economy can be determined by its GDP value. Te higher the GDP, the stronger the economy will be. The GDP deflator or the price deflator of a country measures the level of all new prices, domestic production, and durable and non-durable goods and services. With its calculation, you can figure out how to make adjustments to the economy’s deflation or inflation.
To calculate the GDP deflator of any country, follow these simple steps:
- Find the value of the Nominal GDP, which is the GDP you use to compare with, and is calculated by summing up the quantities of all the final goods and services that have been purchased in a year. Then multiply them with their prices.
- Then, calculate the Real GDP. This is the value used for point of reference, and is calculated by choosing a base year, and then using the prices of different products and services of that year so that you can determine the total sum of consumer expenditures made on the durable and non-durable goods and services of that year. Add the sum of expenditures on investments and the sum of all the government spending on these goods and services as well, and then draw out the difference between the imports and exports made in that year.
- Now that you have the Nominal GDP and the Real GDP, divide the two together: