Briefly explain the difference between constant and current prices in the BOP
Answers
Answer:
Current Prices measures GDP/ inflation/asset prices using the actual prices we notice in the economy. ... Constant prices adjust for the effects of inflation. Using constant prices enables us to measure the actual change in output (and not just an increase due to the effects of inflation.✔✔✔♣️❣☺️❤
In Balance of Payment(BOP),Current prices are based on the current or present value of the currency of a particular country and not adjusted for inflation.Constant prices are based on the value of the currency adjusted for a particular base year.
Explanation:
Current prices are calculated on the basis of the currency value at the present year or present moment of the transaction.Current prices are not adjusted for any inflationary effects in the economy or not expressed in real terms.Any transactions under BOP based on the current prices are therefore done according to the present currency value.
In contrast,constant prices express the inflation adjusted value of currency and the current currency value is compared with that of a particular base year.Any monetary transaction under BOP based on constant prices,therefore,are done on the basis of the real value of the currency or constant value of the currency in purview of a previous year or the base year.Constant prices are intended to adjust for the change in the value of money or currency over time.