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GDP Deflator = Measure of Inflation? (LOS 16c)

Hi all,

I was confused about the following phrasing:

“The implicit GDP deflator is an important measure of the overall price level in the economy, and changes in the deflator provide an important gauge of inflation within the economy”

Isn’t the deflator itself a measure of inflation, and isn’t therefore a change in the deflator an indicator of a change in inflation?

Cheers

"Using Wiley for my CFA journey was by far the best option… I was able to pass on my first attempt.”– Moe E., Canada

Actually I got tripped up by the fact that the base year is not necessarily the previous year, in fact in most examples it is a few years prior. That is why the book’s phrasing is correct.

If you want to make an inflation measurement draw and calculate an ISLM Curve. 

You can find more at http://macrotutor.weebly.com/ with instructions.