A positive GDP deflator implies that 1 Economy must be experiencing acceleration of growth year on y...........

Economic Affairs Growth and Indicators

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A positive GDP deflator implies that

1. Economy must be experiencing acceleration of growth year on year

2. Economy must be experiencing inflation

Which of the above is/are correct?

1 only

2 only

Both 1 and 2

None

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Explanation:

GDP Deflator simply means nominal GDP divided by real GDP. Nominal GDP takes care of inflation, which real GDP does not. GDP deflator is always positive, since GDP cannot be negative. So, if GDP deflator is greater than one, economy was experiencing inflation.
Statement 1: We cannot make anything out of growth figures from GDP deflator numbers, since increased nominal GDP may be caused entirely due to inflation, and not growth.
Statement 2: This would happen if GDP deflator was greater than one. Since it is always positive, nothing can be said about the economic situation.