Why Is GDP Computed Using Market Prices as the Value

question 32

Multiple Choice

Why is GDP computed using market prices as the value of final goods and services?

• A) because market prices do not change much, so it is easy to make comparisons between years
• B) because if market prices are out of line with how people value goods, the government sets ceilings and floors on them
• C) because costs change too much to reflect the value of goods and services
• D) because market prices reflect the value of goods and services

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Definitions:

Par Value

The face value of a bond or stock as stated by the issuing company, which may be different from its market value.

Bond

A fixed income investment in which an investor loans money to an entity (corporate or governmental) which borrows the funds for a defined period at a variable or fixed interest rate.

American Options

Financial derivatives that give the holder the right to buy or sell an asset at a set price at any time before the expiration date.

Expiration Date

The specific date after which a product is considered no longer usable or effective, often found on perishable goods and medications.