It's really goofy, imagine a business expressing its real profits or observing the change in its profits by determining its profits by using the previous years prices
No it’s not. Because the actual prices of the previous years are also deflated. So when you use those for the current year you’re actually chaining (or linking) Real GDP from year to year. And don’t forget that some price don’t always rise. Take electronics for example. Their prices drop as technology gets better and better. It would be incorrect to use base-year prices of 5 years ago as it would create the wrong picture.
Why does it seem dumb? Its just another method to deflate prices. Using base-year prices helps getting a better picture of economic growth. The only issue is that base-year prices get outdated in subsequent years. And that problem is solved with chain linking.
@@MRahim-do1gx The problem is that prices do not express the ratio at which goods exchange for themselves over time, they express the ratio at which the exchange in relation to other commodities. If we want to measure growth as the change in the quantity of commodities produced over time, this is possible. If we want to measure growth in terms of the change in total value over time, this is also possible. Using the prices of a previous period, which actually express a ratio of exchange between commodities in that period, onto the total quantity of commodities produced today, literally tells you nothing of value at all. It is a meaningless metric, as is CPI and WPI etc.
Its like I said below, its the same as a business, taking the prices of the previous year and using that to calculate its 'real' profits based on this years sales and cost of business. What does this tell you? It doesnt tell you the 'real' growth in the businesses profits, it literally tells you nothing at all.
You're a lifesaver!!!
nice to try...
I'm a bit confused. If you just use the previous years actual prices for the current year, isn't that pretty much the nominal GDP?
It's really goofy, imagine a business expressing its real profits or observing the change in its profits by determining its profits by using the previous years prices
No it’s not. Because the actual prices of the previous years are also deflated. So when you use those for the current year you’re actually chaining (or linking) Real GDP from year to year. And don’t forget that some price don’t always rise. Take electronics for example. Their prices drop as technology gets better and better. It would be incorrect to use base-year prices of 5 years ago as it would create the wrong picture.
dont try this at home...but at office
h2 econs lmao
Chain linking seems very dumb
Why does it seem dumb? Its just another method to deflate prices. Using base-year prices helps getting a better picture of economic growth. The only issue is that base-year prices get outdated in subsequent years. And that problem is solved with chain linking.
@@MRahim-do1gx The problem is that prices do not express the ratio at which goods exchange for themselves over time, they express the ratio at which the exchange in relation to other commodities. If we want to measure growth as the change in the quantity of commodities produced over time, this is possible. If we want to measure growth in terms of the change in total value over time, this is also possible.
Using the prices of a previous period, which actually express a ratio of exchange between commodities in that period, onto the total quantity of commodities produced today, literally tells you nothing of value at all. It is a meaningless metric, as is CPI and WPI etc.
Its like I said below, its the same as a business, taking the prices of the previous year and using that to calculate its 'real' profits based on this years sales and cost of business. What does this tell you? It doesnt tell you the 'real' growth in the businesses profits, it literally tells you nothing at all.