What does the GDP deflator measure?

• A. A measure of the price level for all goods and services included in GDP
• B. A measure of the price level for consumer goods only
• C. An index of stock prices
• D. A measure of unemployment

Answer: (A)

The GDP deflator measures the price level for all goods and services included in GDP, meaning everything produced domestically that goes into GDP—consumer goods, investment goods, government purchases, and net exports. It reflects how prices change across the entire economy’s output, not just a fixed subset. You compute it by comparing nominal GDP to real GDP, so it rises whenever the overall price level for domestic production increases. This broad scope distinguishes it from the consumer price index, which tracks a fixed basket of consumer goods, and from stock-price indices or unemployment measures, which track entirely different concepts.