economics hard True/False

The GDP Deflator is mathematically classified as a Laspeyres index because it uses a fixed basket of goods from the base year to measure price changes in the current year.

  1. True
  2. False

Answer: False

The GDP Deflator is actually a Paasche index because it uses the quantities of the *current year* as its weights, reflecting the actual basket of goods and services produced in that specific period. In contrast, the CPI is typically a Laspeyres index, which uses a fixed, historical base-year basket, which can lead to an overestimation of inflation due to the substitution bias.

Topic Macroeconomics - Data
Exam Relevance UPSC Prelims, SSC CGL
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