Copyright Business Economics Gross domestic product (a) What is GDP deflator and how is it calculated? (b) If the GDP deflator for the years 2014 and... Question: (a) What is GDP deflator and how is it calculated? (b) If the GDP deflator for the years 2014 and 2015 are 105 and 108 respectively, then calculate the increase in price level between 2014 and 2015. Gross Domestic Product Gross Domestic Product (GDP) is one of the data economists are monitoring as it can predict the direction of the country's economy in the near-term as it relates with the business cycle. Answer and Explanation: 1 a) GDP deflator is an economic indicator that measures the price change of goods and services produced by an economy as of a given period. Economists use the GDP deflator as it can reliably measure the real GDP between periods. The formula for GDP deflator is = (Nominal GDP / Real GDP) * 100 b) GDP deflator = (105 / 108) * 100-1 GDP deflator = 2.78% Help improve Study.com. Report an Error