Using the Chained-Dollar Method to Calculate Real GDP, Real GDP

question 50

Multiple Choice

Using the chained-dollar method to calculate real GDP, real GDP is calculated by

• A)averaging the growth of output from one year to the next when the growth rates are calculated using this year's prices and using last year's prices.
• B)valuing the current output at last year's real GDP prices.
• C)valuing the current output at current year prices.
• D)either A or C, depending which gives the larger value for real GDP.
• E)averaging the value of current output valued using base year prices and current output valued using current year prices.

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Definitions:

NPV Profiles

NPV profiles are graphical representations that show the relationship between a project’s net present value and the discount rate applied to its cash flows.

Cash Flows

The net amount of cash being transferred into and out of a business, considered essential for assessing its financial health.

Cost of Capital

The cost of capital is the rate of return that a company must earn on its investment projects to maintain its market value and attract funds.

Crossover Rate

The discount rate at which two projects have the same net present value (NPV), used in capital budgeting.