GNP Implicit Deflator can be employed for construction of price indices and measurement of changes in price level. In our example, the nominal GNP for the year 1992-93 was Rs 61,897.00 billion, while the real GNP for the same year was Rs 21,870.00.

The GNP Implicit Deflator, therefore, is 61,897/21,870 or 2.8302 while GNP deflator is 251.00 only. The discrepancy may have arisen from the use of wholesale price indices in calculation of GNP deflator.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

To calculate the rate of inflation, we calculate approximate value of the price-index number for the year 1992-93 using the formula:

Thus approximate price index for the year 1991-92 is 258.7. (Note that the figures of nominal and real GNP and the wholesale price-index number have been taken from the Economic Survey of 1998-99. The same is given in Table 2.36 for ready reference).

For all practical purposes, GNP deflator and GNP implicit deflator are the same so long as the nominal and the real GNP are taken to define each or so long the price indices employed in converting the nominal GNP into real GNP are neither the Consumer Price Indices (CPI) nor the Wholesale Price Indices (WPI). The consumer price indices account only for consumer goods while the wholes price indices account only for certain commodities in certain markets and at certain quotations.

Author