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C) IPD – Implicit Price Deflator

The widest price index is the implicit price deflator or the GDP deflator. This price

index covers all output. Unlike the CPI and PPI, GDP deflator is not based on a fixed basket of goods and services. GDP deflator enables a change of basket varied

according to the patterns of consumption and investment. GDP deflator is therefore

not a pure measure of price changes. Its value reflects both price changes and market response to these price changes, reflected the new model costs. As a result,

the GDP deflator will typically experience a lower rate of inflation than the CPI index. GDP deflator is used to adjust the nominal value of output (GDP) to change price

levels. It is calculated as the ratio of nominal and real gross domestic product of the economy: