GDP deflator
Definition
The GDP deflator is a measure of the overall price level in an economy. It compares the current prices of all goods and services produced to a base year, allowing us to see how much inflation or deflation has occurred.
Analogy
Think of the GDP deflator as a giant scale that measures the weight of prices in an economy. Just like a scale compares the weight of objects to a standard weight, the GDP deflator compares current prices to a base year to determine changes in the overall price level.
Related terms
Consumer Price Index (CPI): A measure that specifically focuses on changes in prices for goods and services purchased by consumers.
Producer Price Index (PPI): A measure that tracks changes in prices at various stages of production, from raw materials to finished products.
Inflation: The general increase in prices over time, leading to a decrease in purchasing power.
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