Which of the following statements is/are correct about GNP deflator?

1. The GNP deflator provides an alternative to the Consumer Price Index (CPI). 

2. The higher the GNP deflator, the lower the rate of inflation for the period.

Select the correct answer using the code given below:

• The Gross National Product deflator is simply the adjustment for inflation that is made to nominal GNP to produce real GNP. The GNP deflator provides an alternative to the Consumer Price Index (CPI) and can be used in conjunction with it to analyze some changes in trade flows and the effects on the welfare of people within a relatively open market country.
• The CPI is based upon a basket of goods and services, while the GNP deflator incorporates all of the final goods produced by an economy. This allows the GNP deflator to more accurately capture the effects of inflation, since it is not limited to a smaller subset of goods.

In brief

• The Gross National Product deflator is an economic metric that accounts for the effects of inflation in the current year’s Gross National Product.
• The GNP deflator provides an alternative to the Consumer Price Index (CPI) and can be used in conjunction with it to analyze some changes in trade flows and the effects on the welfare of people within a relatively open market country.
• The higher the GNP deflator, the higher the rate of inflation for the period.