Changes in real GDP reflect[Fill in the blank]

Question

BlackTom AI · Accepted Answer

To tackle the question, I’ll examine what changes in real GDP represent and how they relate to prices and quantities.
Option a: 'neither changes in prices nor changes in the amounts being produced.' This is inaccurate because real GDP specifically tracks the value of goods and services produced, adjusted for price changes. If production (quantities) changes, real GDP changes; the statement incorrectly denies both price and quantity effects.
Option b: 'both changes in prices and changes in the amounts being produced.' Real GDP is designed to measure changes in the quantities of goods and services, adjusted for price level; while prices affect nominal GDP, real GDP isolates quantity changes after removing price level effects. So this option overstates the role of price changes in the measurement of real GDP.
Option c: 'only changes in the amounts being produced.' This is correct because real GDP changes reflect changes in the physical output (the quantities) of goods and services, after controlling for price level. It captures how much more or less is produced, not how much prices move.
Option d: 'only changes in prices.' This is incorrect since price changes are captured by nominal GDP and price indices, not by real GDP. Real GDP filters out price level effects to focus on real output changes, so price movements alone do not drive real GDP changes without a change in quantities.
In sum, the concept at play is that real GDP is a measure of real output—output adjusted for price level—so the quantity of production is what drives changes in real GDP, making option c the correct interpretation.

Changes in real GDP reflect[Fill in the blank]

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