Which of the following statements is/are correct? 1. GDP deflator captures the average price of an unchanging basket of commodities that constitutes the GDP of the country. 2. GDP deflator can be used to measure the real GDP of the economy but not the inflation rate. Select the correct answer using the code given below.

Statement 1 is incorrect because the GDP deflator does not use an unchanging or fixed basket of commodities. Unlike the Consumer Price Index (CPI), which uses a fixed basket, the weights in the GDP deflator differ according to the actual production levels of goods and services in the current year [5]. It reflects the prices of all domestically produced final goods and services, and its composition changes as the economy's production structure evolves [3]. Statement 2 is also incorrect. While the GDP deflator is used to convert nominal GDP into real GDP by discounting inflationary impacts [4], it is simultaneously considered one of the best and most comprehensive indicators of the inflation rate in an economy [5]. It captures price changes across the entire range of goods and services produced domestically, including those purchased by businesses and the government [4].

Sources

1. [5] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > The following are some basic differences in CPI, WPI and GDP deflator: > p. 33
2. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 2: National Income Accounting > 2.4 NOMINAL AND REAL GDP > p. 29
3. [3] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 2: National Income Accounting > 2.4 NOMINAL AND REAL GDP > p. 30
4. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 1: National Income > Real versus Nominal GDP > p. 7
5. [4] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 1: National Income > Why GDP Deflator is preferred in Real GDP computation as compared to other inflation indexes like WPI, CPI? > p. 8