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Definition: Implicit Price Index
Implicit price Index is a ratio of the nominal GDP and the real GDP of any economy. The real GDP is a measure of GDP that has been adjusted for the inflation over the years taken from the base year. It is also known as the GDP deflator.
Implicit Price Index = (Nominal GDP) / (Real GDP) *100
Implicit Price Index tells about the Inflation or deflation in an economy in comparison to the base year. The Implicit price index in this regard is very similar to the Consumer Price Index (CPI) or the wholesale price Index (WPI) as it is also a measure of inflation or deflation. But as CPI and WPI have a weighted average of a few defined goods for measuring the inflation in contrast the Implicit price Index takes into consideration the total output of the economy as it compares the GDP’s. For the GDP deflator the basket of goods is decided as per the output of the market and it keeps changing every year.