What is the main purpose of linking adjacent years in a chain price index?
Answer and explanation
Correct answer: To incorporate changing weights progressively over time
A chain price index links price changes from one period to the next instead of comparing every period only with a distant fixed base year. This permits expenditure or output weights to be updated progressively as the structure of the economy changes. Option A is correct. The method does not equalise prices, reclassify imports as domestic output, or keep nominal GDP constant; those claims confuse measurement with economic outcomes.
Frequently asked questions
What is the correct answer to this question?
To incorporate changing weights progressively over time
Why is this the correct answer?
A chain price index links price changes from one period to the next instead of comparing every period only with a distant fixed base year. This permits expenditure or output weights to be updated progressively as the structure of the economy changes. Option A is correct. The method does not equalise prices, reclassify imports as domestic output, or keep nominal GDP constant; those claims confuse measurement with economic outcomes.
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.
