#firstdealofthenewyearastylz# GDP Deflator The GDP deflator is a measure of the average price level of all goods and services produced within a country's borders. It's calculated by dividing the nominal GDP by the real GDP, and then multiplying by 100. GDP Deflator = (Nominal GDP / Real GDP) x 100 The GDP deflator reflects the changes in prices of all domestically produced goods and services, including those not purchased by consumers. Consumer Price Index (CPI) The Consumer Price Index (CPI) measures the average change in prices of a basket of goods and services consumed by households. It's a widely used indicator of inflation, which is the rate of change in prices of goods and services. CPI = (Current Year Price Index / Base Year Price Index) x 100 The CPI basket typically includes items such as: 1. Food and beverages 2. Housing 3. Clothing 4. Transportation 5. Healthcare 6. Recreation and entertainment *Key differences:* 1. *Scope*: GDP deflator covers all domestically produced goods and services, while CPI focuses on household consumption. 2. *Weightage*: GDP deflator gives equal weightage to all goods and services, whereas CPI assigns weights based on household expenditure patterns. 3. *Purpose*: GDP deflator is used to adjust nominal GDP to real GDP, while CPI is used to measure inflation and track changes in the cost of living. I hope this explanation helps clarify the concepts!