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  1. 1. With an Indian Perspective Prepared By : Abhishek MBA 1 st Year DoMS ,IITR
  2. 2. <ul><li>GDP: Market Value of all finished goods and services </li></ul><ul><li>produced in an economy in a given period of time. </li></ul><ul><li>GDP = Consumption+ Investment+ Government Purchases+ </li></ul><ul><li>Net Exports. </li></ul><ul><li>Nominal GDP: Value of goods and services measured at </li></ul><ul><li>current prices. </li></ul><ul><li>Real GDP: Value of Goods and services at base year prices. </li></ul><ul><li>GDP Deflator: (Nominal GDP/Real GDP) x100 </li></ul>
  3. 3. <ul><li>A Rupee doesn’t buy as much as it did twenty years ago! </li></ul><ul><li>Inflation: Increase in the overall level of prices. </li></ul><ul><li>CPI: a measure estimating the average price of consumer </li></ul><ul><li>goods and services purchased by households. </li></ul><ul><li>CPI = (Product x Prices current year )/ (Product x Prices base year ) </li></ul><ul><li>Reliably aggregates the prices of different goods and </li></ul><ul><li>services in a single index. Most watched index. </li></ul>
  4. 4. <ul><li>GDP Deflator </li></ul><ul><li>CPI </li></ul><ul><li>Measures the prices of all goods and services </li></ul><ul><li>Includes only domestically produced goods and services </li></ul><ul><li>Assigns Changing weights to the prices of different goods </li></ul><ul><li>Paasche Index </li></ul><ul><li>Understates Inflation </li></ul><ul><li>Measures thee prices of goods and services bought by the consumers </li></ul><ul><li>Includes all goods and services bought here </li></ul><ul><li>Assigns fixed weights to the prices of different goods </li></ul><ul><li>Laspeyres Index </li></ul><ul><li>Overstates inflation </li></ul>
  5. 5. <ul><li>Suppose a country’s entire crop of orange is destroyed. The prices of those remaining in stock skyrocket. </li></ul><ul><li>Increase in orange prices does not show up in GDP deflator as it no longer a part of GDP. </li></ul><ul><li>The same event causes a substantial rise in CPI as it considers a fixed basket of goods. </li></ul>
  6. 6. Source:
  7. 7. <ul><li>Although the two diverge at times, they usually agree. </li></ul><ul><li>Generally tell the same story about how quickly the prices are rising in an economy. </li></ul>