question_answer

The value of nominal GNP of an economy in a particular year is Rs. 2,800 crore. The value of GNP of that country during the same year evaluated at the prices of the base year was Rs. 3,200 crore. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?

Answer:

GNP of an economy valued at current year prices = Rs.2,800 crore                            GNP of an economy valued at base year prices = Rs.3,200 crore                             \[\text{GNP}\,\text{Deflator=}\frac{\text{GNP}\,\text{Valued}\,\text{at}\,\text{Current}\,\text{Year}\,\text{Prices}}{\text{GNP}\,\text{Valued}\,\text{at}\,\text{base}\,\text{Year}\,\text{Prices}}\text{ }\!\!\times\!\!\text{ 100}\]                                     \[=\frac{2,800}{3,200}\times 100=87.5%\] No, the price level has not risen between the base year and the year under consideration. Rather, it has fallen by 12.5%.