In economics, a gross domestic product – or GDP – deflator is a factor that is used to compare today's market prices to the market prices from a previous year. Calculating is simple once you know how.
Step 1: Choose a country or region to study Choose a country or a region that you wish to study and learn more about its gross domestic product.
Step 2: Find the nominal GDP Find the nominal GDP for your chosen region. The nominal GDP is the country's gross domestic product measured at today's market prices.
TIP: You can get the nominal GDP for most nations from the World Bank web site – worldbank.org.
Step 3: Select a base year you wish to compare Select a base year that you will use for comparison to the current gross domestic product.
Step 4: Get the real GDP for your base year Get the real GDP measurement for your country. The real GDP is the gross domestic product of your country, measured in dollars from your base year.
TIP: If you have chosen a base year of 1995, for example, the real GDP will be the current gross domestic product of your region, multiplied by their 1995 prices.
Step 5: Divide nominal GDP by real GDP, multiply by 100 Divide the nominal GDP by the real GDP. Multiply this total by 100 to find the GDP deflator.
TIP: Rearrange the values in the equation to find nominal GDP when you know the real GDP and the GDP deflator.
Step 6: Interpret the GDP deflator Interpret the GDP deflator. Think of it as the ratio of today's prices to those of your base year. A deflator of 200 means that the current year's GDP is twice that of the base year, signaling inflation.
FACT: Did you know? As of 2009, the U.S. has a per capita GDP of $46,900.