Gross Domestic Product
Deflators
There are two types of GDP Deflators; Fixed Weight and
Implicit. Both of these are indexes that are applied to a value
estimate of Gross Domestic Product to come up with a more realistic value
of Gross Domestic Product. These price indexes show whether there
has been a real rise or fall in Gross Domestic Product from one year to
the next. The index is created by dividing the current GDP price by
the deflator.
The GDP Deflator is based on a broad group of goods,
including the prices of investment goods bought by the public sector, in
addition to consumer prices.
Fixed
Weight GDP Deflator
This deflator
measures price changes on a group, or basket, of goods and services.
This basket is selected at a certain point in the year that the index is
being created for. This index is an average of the indices of all the goods and services
included in the group being studied, and all indices are of equal
strength. The index is created by multiplying the various price movements by their weights and adding the results together.
Implicit GDP Deflator
The implicit GDP
deflator shows changes in prices ands it also shows changes in the
patterns of where, and how, people are spending money. This deflator
is not based on a pre-selected basket of goods like the Fixed Weight
Deflator, therefore it can take into account price changes in an area That
the fixed weight deflator would not normally place much strength.
The Implicit GDP
Deflator is created by dividing the current price Gross Domestic Product
by real Gross Domestic Product and then by multiplying by 100.
Even though the
implicit GDP deflator can give a more complete picture of the U.S. economy
the Commerce Department favors the fixed weight version. In some cases the implicit GDP deflator may
not give as broad a measure of inflation as the fixed weight deflator.
The implicit GDP deflator can become distorted by one-off surges in a
particular area of the economy.
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Indicators and Reports:
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