Base Year

Definition

The base year is a reference point used to compare economic data over time. It serves as a benchmark against which other years are measured to calculate changes in variables like GDP or price levels.

Related terms

Real GDP: Real GDP measures economic output adjusted for changes in prices using a base year, providing an accurate picture of economic growth.

Price Index: A price index compares the cost of purchasing a fixed basket of goods and services at different points in time relative to its cost during the base year.

Deflation: Deflation occurs when there is a sustained decrease in overall price levels, leading to an increase in purchasing power.