While calculating the GDP base year, why do we need an stable year? Why can't we choose 2020, which is a COVID year, What's the issue with that?
When in the real GDP calculation we are not considering the price, we are removing the effect of price, then the prices of 2020 won't matter us. Then what's the issue with 2020 as the base year?
We are just taking the prices from base year. And in real gdp calculation we are removing it's effect.
F We do not consider changes in prices while calculating real GDP; rather, the prices of the base year are used as fixed weights to value the output produced in different years. The base year therefore provides a reference basket or structure of goods and services produced in that year. In an abnormal year, such as 2020 during the COVID-19 pandemic, the output and economic structure may have been significantly distorted. Production of some goods and services may have fallen drastically, while the output of certain other goods and services may have increased unusually. If such an abnormal year is taken as the base year, these unusual quantities and relative weights may not appropriately represent the normal structure of the economy and could distort the measurement of real GDP growth in subsequent years. Therefore, the base year should ideally be a normal and representative year, relatively free from extraordinary events that substantially affect production, consumption and the overall economic structure. However, it is important to clarify that this does not mean that base-year prices are completely ignored. In the traditional calculation of real GDP, the base-year prices are used to value current-year quantities. What is removed is the effect of changes in prices, not the use of prices altogether. Similarly, under the expenditure approach, quantities of final goods and services are valued using appropriate prices or price indices, while under the income approach, nominal income components are converted into real terms using appropriate deflators. Thus, base-year prices continue to play a role as valuation weights even though the objective of real GDP is to measure changes in the volume of economic activity rather than changes in prices.👏1
2020 was year of great fluctuation , volatility , unforseen circumstances, bcoz of which ek country ke growth trend mein sudden break aata hai , like business isnt as usual , so isliye we dont take such contingent years as base year , base year ka matlab hee yahi hota hai ki aap kisi stable cheez ko parameter maan kar baaki auro cheezo ko compare karoge
If anyone wants upsc gs, optional lectures, gate ,ese , neet , jee lectures
Dm at
@Lectures_Vault
@ak_eco👉 Register Now - https://forms.gle/9yJFc93miLDcgcBR9
Balancing a full-time job with UPSC preparation can be challenging — but with the right strategy, it’s absolutely manageable!
Join our FREE Webinar with Aditya Kalia Sir and learn how to build a focused, practical, and effective preparation stra
Where can we watch this webinar sir, YT/ sarthi Portal ?