Overview of the characteristics of the 2 measures is presented below to highlight the advantages of chain volume measures and the reasons for adopting chain volume measures.

A) The prime advantage of GDP at constant prices is additive. Table 1 shows that the total value of production at constant prices in Period 1 (\$38) equals the aggregate of choy sum (\$14) and cucumber (\$24); the total value of production at constant prices in Period 2 (\$54) equals the aggregate of choy sum (\$18) and cucumber (\$36). As the price structure of the base year is used, GDP at constant prices can be calculated by aggregating the components at constant prices. In addition, another advantage is simplicity in calculation; constant price estimates can be derived by simply dividing the current prices by a fixed-base deflator.

B) Bias exists when estimating the volume changes for periods which are distant from the base year, as indirect index is compiled using the price structure of the base year. In general, the magnitude of the bias is proportional to the distance away from the base year, the further away from the base year, the larger the bias. Table 1 shows that the real growth of the total in Period 2 (42.11%) equals the volume measures in Period 2 (\$54) divided by the volume measures in Period 1 (\$38) where volume measures in Period 1 and 2 are derived using the prices in the base year (Period 0), which are not directly related to the price structures in Period 1 and 2.

C) As commodities and quality changes, the set of homogenous commodities become progressively smaller and the prices of homogenous commodities change over time; the price structure of the base year becomes irrelevant and fails to convey commodities and prices in the current year. Thus, volume measures derived using the fixed-base price structure does not reflect the real world economic circumstances. In Macao, with rapid changes in the economic structure in recent years, weights of each components of GDP vary each year, GDP at constant prices become irrelevant as it gets further away from the base year.

D) As illustrated in C), constant price estimates distort year-on-year growth rates and the magnitude increases with the passage of time. To address this problem, the base year is updated around every 5 years. However, as the base year is changed, a different price structure is used for comparison, the revised real growth rates are different from the original time series. In general, years preceding the base year are revised downward while years following the base year are revised upward. Such revisions may be confusing to the users.