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Why may deflators for earlier years change when a new base year gives greater weight to a rapidly growing service sector?

Answer and explanation

Correct answer: Because output and price weights are recalculated

Rebasing changes the valuation framework used to calculate real GDP and the associated price index. Giving a rapidly growing service sector a greater weight can alter the composition of the output basket and the relative importance of its prices. Earlier measured deflators may therefore be revised, even though the historical market prices themselves have not changed. Thus option A is correct; the other choices describe unrelated changes.

Related tags

RebasingService SectorOutput WeightsGdp DeflatorPrice MeasurementGdp And WelfareNational Income And Related AggregatesEconomics

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