What is the relation between GDP and inflation?

Question

What is the relation between GDP and inflation?

Answer 1

GDP: The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given countries economy. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value.

The most common approach to measuring and understanding GDP is the expenditure method:

GDP = consumption + gross investment + government spending + (exports − imports)

INFLATION:

Inflation is a rise in the general level of prices of goods and services over time.

Economists agree that high rates of inflation are caused by high rates of growth of the money supply. Views on the factors that determine moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation at moderate rates: the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply.

(material from wikipedia)

Answer 2

Inflation is related to rise in prices, either at wholesale or at retail level.

GDP is based on measuring the output of the economy, which is done at current prices.

Hence, if the inflation is high, then the GDP will also be higher proportionately.In order to account for this, GDP across several years will need to be adjusted using the inflation series, or deflators as they are called.

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