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:

Invoice

A document issued by a seller to a buyer, detailing a transaction and requesting payment for goods supplied or services rendered.

Open Account

A credit arrangement where goods or services are sold without immediate payment, allowing the buyer to pay at a later scheduled date.

EOQ Model

The Economic Order Quantity model is used to determine the optimal order size to minimize the sum of ordering, carrying, and stockout costs.

Reorder Points

The inventory level at which a new order should be placed to replenish stock before it runs out, avoiding stockouts and production delays.