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.
Frequently asked questions
What is the correct answer to this question?
It better reflects current production structure and new goods
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
