What is the main purpose of deflating a monetary series by a price index?
Correct answer: D. To convert nominal values into real values
- A. To calculate the number of observations
- B. To convert real values into nominal values
- C. To remove seasonal variation only
- D. To convert nominal values into real values
Explanation
Deflation removes the effect of general price changes so that values from different periods can be compared in real terms. It does not by itself remove seasonal fluctuations.
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About Index Numbers
Index numbers measure relative changes in prices, quantities or values over time using a base period. Work includes simple and weighted price indices, aggregate methods, consumer price calculations, percentage change and purchasing power, with attention to choosing a base year and interpreting an index rather than treating it as an absolute amount.
Practise Index Numbers
30 free Index Numbers MCQs from Quantitative Methods, each with the correct answer and an explanation. Unlimited attempts, no account needed.
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