PRC-2 · Chapter 9 · Question 11 of 60
In standard index construction, why do economists occasionally perform a process known as 'base shifting'?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) To move the reference point to a more recent, relevant period.
Explanation
Over time, old base years become outdated due to technological changes and shifting consumption habits. Base shifting resets the index to 100 at a newer, more relevant year to make current comparisons meaningful.
More Indices MCQs
- Q13If the Laspeyres index for a dataset is 120 and the Paasche index is 125, what is the approximate Fisher's Ideal Index?
- Q14A fundamental characteristic of the Laspeyres Index is that it tends to:
- Q15What is the primary formula representing a Value Index?
- Q16What is a defining characteristic of the Laspeyres price index regarding its denominator?
- Q17Why is the Laspeyres price index typically used more frequently in practical economic applications than the Paasche price index?