Consider the following statements about GDP Deflator:

1. It is a tool to measure the level of price changes over time.

2. GDP Deflator is acclaimed as a better measure of price behaviour, because it covers all goods and services produced in the country.

Which of the statements given above is/are correct?

· GDP stands for “gross domestic product”, the total value of all final goods and services produced within that economy during a specified period.

· GDP Deflator is a measure of the change in prices of all new, domestically produced, final goods and services in an economy. The GDP Deflator is not based on a fixed market basket of goods and services, but applies to all goods and services domestically produced.

· GDP Deflator is the ratio between GDP at current prices and GDP at constant prices.

· If GDP at current prices is equal to the GDP at constant prices, the GDP Deflator will be 1, implying no change in price level. If GDP deflator is found to be 2, it implies rise in price level by a factor of 2, and if GDP deflator is found to be 4, it implies a rise in price level by a factor of 4.

· GDP Deflator is acclaimed as a better measure of price behaviour, because it covers all goods and services produced in the country.