MACROECONOMICS: WHAT IS IT ABOUT?
23
The price of pizzas declined to 85 per cent of its original price from INR 100
to INR 85. The price of books increased by 23 per cent from INR 500 to INR
615. The weighted average of price increase in the overall economy is then
given by
[0.545455(0.85)
+
0.454545(1.23)]100
=
(0.463636
+
0.559091)100
=
(1.022727)100
=
102.27
This is exactly what the summary indicator calculated. (See Appendix 1.1 for a
derivation of the formula for the GDP deflator for the case of
n
goods.)
1.3.2
Measures of Inflation
The GDP deflator is the only measure of inflation that takes into account the
inflation ...
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