Formula for GDP Deflator Calculation (Table of Contents)
What is the GDP Deflator Formula?
The GDP Deflator formula is an economic metric which measures the output in constantdollar GDP by converting output that is measured at current prices and thus accounting for the inflation.
It is represented as below,
 The extent of price level changes or inflation shall be measured by the GDP price deflator within the economy.
 That means this would include the prices of all services and goods from government and businesses as well as any consumption or say purchased by those consumers.
 The deflator calculator shall depict that is how the change in the previous period which is used as the base year GDP had relied upon the changes in the price level.
 The GDP price deflator can also be called as the implicit price deflator or in other words as GDP deflator.
Examples of GDP Deflator Formula (with Excel Template)
Let’s see some simple to advanced examples of GDP Deflator formula to understand it better.
Example #1
PQR country is a big economy and the GDP of the country is $20 billion and the real GDP of the economy is $16 billion. Does the government want to know what the GDP Deflator is?. You are required to compute GDP Deflator.
Solution:
We have both the nominal and real figures of GDP, we shall use the below formula to calculate the GDP Deflator.
Below is given data for calculation of GDP Deflator
Therefore, the calculation of GDP Deflator can be done using the above formula as,
GDP Deflator will be –
=( $20 billion / $16 billion) * 100
GDP Deflator = 125%
Hence, we can say that the prices have been increased by 25% from the base year to this year.
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Example #2
Vice President Wing of Japan’s statistics department gave a presentation to the entire nation stating that the GDP of the country has increased by 40%. One of the journalists questioned the correctness of the figure and stated that the real GDP has only increased by 15%. The secretary to the vice president presented that journalist with the following information:
 Nominal GDP $12.5 billion
 Real GDP$10.0 billion
Inflation of last 5 years =4%
Growth Rate = 1%
Exchange Rate =2.44
You are required to assess the counterclaim made by the journalist.
Solution
Here, the journalist is claiming that actual GDP growth is not 40% but only by 15% and the rest of the increase in GDP is due to the increase in prices. Below is given data for calculation of GDP Deflator
Therefore, the calculation of GDP Deflator is as follows,
GDP Deflator will be –
=( $12.50 billion / $10 billion) * 100
GDP Deflator =125%
This means that the price impact has been 25% from the base year and hence the counterclaim made by the journalist is correct that real GDP is approximately improved by 15% considering that the overall figure of 40% is correct.
Example #3
Country X is a developing nation and has been doing quite well. It has been performing excellent seeing its growth rate. Below is the information extracted from records that are available in the public domain. The finance minister wants to know the GDP deflator that will help them to know the real increase in GDP. You are required to calculate GDP Deflator.
Solution
We now have both the nominal and real figures of GDP, we shall use below formula to compute the GDP Deflator
First, we will compute the GDP both in nominal and Real terms by adding all of the terms and subtracting import via expenditure method.
Therefore, the calculation of GDP Deflator is as follows,
GDP Deflator will be –
=( 23,00,000 / 15,33,333.33 ) * 100
GDP Deflator = 150%
Hence, we can say that the prices have been increased by 50% from the base year to this year.
GDP Deflator Calculator
You can use this GDP Deflator calculator
Nominal GDP  
Real GDP  
GDP Deflator  
GDP Deflator= 



Relevance and Uses
The concept of GDP Deflator is very vital because a nation’s or an economy’s nominal GDP will vary from its real GDP as in that nominal GDP it does content inflation, while the concept of real GDP ignores inflation and hence it does not include in its calculation. As a result, the nominal GDP will most likely be greater than the real GDP.
Therefore, it can be said that the GDP price deflator will measure the variance between nominal GDP and real GDP, which further can also be used for price inflation as a measurement. Further, this concept automatically captures the introduction of new services and goods or any changes in the consumption pattern when compared to the concept of CPI (Consumer Price Index) which is based on the concept of a fixed basket of goods to measure consumer inflation.
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