Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Economic Analysis & Monetary Policy

GDP Deflator - Explained

What is the GDP Deflator?

Written by Jason Gordon

Updated at March 28th, 2023

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

What is the GDP Deflator?

The GDP deflator, which the Bureau of Economic Analysis measures, is a price index that includes all the GDP components (that is, consumption plus investment plus government plus exports minus imports). Unlike the CPI, its baskets are not fixed but re-calculate what that year’s GDP would have been worth using the base-year’s prices. MIT's Billion Prices Project is a more recent alternative attempt to measure prices: economists collect data online from retailers and then put them into an index that they compare to the CPI.

What’s the best measure of inflation? If one is concerned with the most accurate measure of inflation, one should use the GDP deflator as it picks up the prices of goods and services produced. However, it is not a good measure of the cost of living as it includes prices of many products not purchased by households (for example, aircraft, fire engines, factory buildings, office complexes, and bulldozers). If one wants the most accurate measure of inflation as it impacts households, one should use the CPI, as it only picks up prices of products purchased by households. That is why economists sometimes refer to the CPI as the cost-of-living index. As the Bureau of Labor Statistics states on its website: “The ‘best’ measure of inflation for a given application depends on the intended use of the data.”

Back to:ECONOMIC ANALYSIS & MONETARY POLICY

Related Topics

  • Inflation
  • Core Inflation
  • Cost Push Inflation
  • Demand Pull Inflation
  • Wage Push Inflation
  • Inflation Spiral (Wage-Price Spiral)
  • Agflation
  • Basket of Goods and Services
  • Indexing and Index Number
  • Base Year
  • Consumer Price Index
  • Substitution Bias
  • Quality / New Goods Bias
  • Core Inflation Index
  • Producer Price Index
  • International Price Index
  • Employment Cost Index
  • Buying Power Index
  • Breakfast Index
  • Employment Cost Index
  • Producer Price Index
  • Capital Goods Price Index
  • Farm (Agricultural) Price Index
  • Harmonized Index of Consumer Prices
  • Repeated Sales Method (Real Estate)
  • GDP Deflator
  • Deflation
  • Pigou Effect
  • Hyperinflation (Economics)
  • Biflation
  • Inflation and Redistribution of Purchasing Power
  • Inflation Blurs Price Signals
  • Inflation Affects Long-Term Planning
  • What are the Benefits of Inflation?
  • Indexing and Index Number
  • Cost of Living Allowance
  • Adjustable Rate Mortgage
deflator gdp

Was this article helpful?

Yes
No

Related Articles

  • Jackson Hole Economic Symposium - Explained
  • Financial Intermediary - Explained
  • Emergency Economic Stabilization Act of 2008 - Explained
  • Surplus and Shortage (Consumer and Producer) - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand