Real GDP is calculated using base year prices.

Question

BlackTom AI · Accepted Answer

The question states: Real GDP is calculated using base year prices.

Since this is a multiple-dropdowns type item but no dropdown options are provided, there are no listed alternatives to evaluate individually.

In general, the core idea is that Real GDP measures the value of economic output using prices from a chosen base year to strip out the effects of price changes over time. This allows comparison of output across years in constant dollars.

If the intended option among a set were "base year" (or "base year prices"), that would be correct because base-year prices are used to value production in Real GDP.

Potential subtleties students should watch for include:
- Some curricula use a chained-dollar approach (linking growth across years) rather than a single base year, which slightly alters the method compared to a fixed base year.
- The choice of base year affects the numeric level of Real GDP, though real growth rates are less sensitive to the exact base year once chaining is used.
- Real GDP versus Nominal GDP: Nominal GDP uses current-year prices, whereas Real GDP uses constant prices from the base year.

Because no answer options are provided here, there isn’t an opportunity to critique specific distractors or incorrect statements. If options were given, we would evaluate each one against the definition of Real GDP and explain why each correct or incorrect.

Princip of Econ-Macroeconomics Chapter 7 Homework

Real GDP is calculated using base year prices.

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