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How does periodic revision of the base year improve the usefulness of the deflator?

Answer and explanation

Correct answer: It better reflects current production structure and new goods

Economic structures, consumption patterns, technologies and the range of goods and services change over time. Revising the base year updates the relative prices and production weights used for comparison, allowing the deflator to represent the current economy more accurately. Therefore option A is correct. A base-year revision does not freeze prices, convert imports into domestic output, or make real GDP zero.

Related tags

Gdp DeflatorBase Year RevisionProduction StructurePrice MeasurementGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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