The Drawback to Calculating Real GDP Using Base Year Prices

question 20

Multiple Choice

The drawback to calculating real GDP using base year prices is that:

• A)real GDP in one year is not comparable to real GDP in another year.
• B)relative prices change over time and these are not reflected in base year prices, which distorts GDP.
• C)relative prices change over time and these changes are reflected in base year prices.
• D)quality changes are reflected in base year prices.

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Definitions:

Pareto Analysis

A method used in quality control and business to identify the few critical causes that account for most of an effect, enabling prioritization of effort.

Project Life Cycle

The series of phases that a project goes through from its initiation to its closure.

Variable Costs

Expenses that vary directly with the level of production or output, such as materials and labor costs.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and loan payments.