CA Foundation · Quantitative Aptitude · Index Numbers
Which of the following is the main purpose of deflating a series of money values (such as nominal sales) using a price index?
Deflating converts nominal or money values into real values at constant base-year prices by dividing them by the price index and multiplying by 100. It removes the effect of price changes, unlike base shifting or splicing, which only change the reference year or join series.
- ATo convert the series into real values at constant pricesCorrect
- BTo change the base year of the price index
- CTo join two index series with different base years
- DTo calculate the weighted average of price relatives
Explanation
Deflating divides a money value by the price index (as a fraction of 100) to remove the effect of price changes. This gives real values at base-year prices. Base shifting changes the reference year and splicing joins two series, so these options describe different procedures.
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