The Drawback to Calculating Real GDP Using Base-Year Prices Is

question 215

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, which is not reflected in base-year prices, and this 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.
• E)base year prices do not capture changes in production from year to year.

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Definitions:

Total Surplus

The sum of consumer surplus and producer surplus, representing the total net benefit to society from the production and consumption of a good.

International Trade

The exchange of goods, services, and capital between countries and territories.

Autarky

Autarky is an economic policy or situation in which a nation is self-sufficient and does not engage in international trade or relies minimally on external resources.

Producer Surplus

the difference between what producers are willing to accept for a good versus what they actually receive.