Constant Prices

The use of the prices of a given year in calculating costs and benefits in other years so as to eliminate the effect of inflation. This is usually done by means of a price index or price deflator. An example of such an index (deflator) is P1Q1/P0Q1, where P1 is a set of prices at date 1, Q1 is a set of commodities at that date and P0 is the set of prices for those same commodities at an earlier date.

Construct Validity 67

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