GDP deflator

From Free net encyclopedia

In economics, the GDP deflator (implicit price deflator for GDP) is a measure of the change in prices of all new, domestically produced, final goods and services in an economy. GDP stands for gross domestic product, the total value of all goods and services produced within that economy during a specified period.

The GDP deflator is not based on a fixed market basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices.

1 Calculation
- 1.1 Measurement in National Accounts
- 1.2 United States
2 Hedonics
- 2.1 United States
3 See also
4 External links
- 4.1 Data
- 4.2 Hedonics

[edit]

Calculation

[edit]

Measurement in National Accounts

In most systems of National Accounts the GDP deflator measures the difference between the real (or chain volume measure) GDP and the nominal (or current price) GDP. The formula used to calculate the deflator is:

<math>\operatorname{GDP\ deflator} = \frac{\operatorname{Nominal\ GDP}}{\operatorname{Real\ GDP}}\times 100</math>

Dividing the nominal GDP by the GDP deflator would then give the figure for real GDP, hence deflating the nominal GDP into a real measure.

Unlike a price index, the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices. However, the disadvantage of this approach is that the GDP deflator measures changes in both prices and the composition of the basket, and so should not be used as a measure of pure price changes in the economy. In practice the difference between the deflator and a price index on the same set of goods and services is relatively small.

[edit]

United States

The GDP and GDP deflator are calculated by the Bureau of Economic Analysis (BEA).

[edit]

Hedonics

[edit]

United States

Steve Milunovich of Merrill Lynch noted in a February 2004 report that the Bureau of Economic Analysis (BEA), whose job it is to compute the Gross Domestic Product each quarter, has "stopped reporting the real computer hardware shipment figure used to calculate real GDP growth, though it is still used in GDP calculations." The BEA, which is part of the Commerce Department, made this readjustment because it is "concerned the rapid price declines for computers made the figures misleading."

The computer-spending component has warped GDP calculations in many of the last eight quarters. From the second quarter of 2000 through the fourth quarter of 2003, the government estimated that real tech spending rose from $446 billion to $557 billion, when nominal spending only increased to $488 billion. That extra $72 billion represents the value the government infers the improvement in computer quality is worth.

[edit]