Question

Real GDP means GDP:________.
a. corrected for changes in quality.
b. valued at prices in a base year.
c.that does not change from year to year.
d. valued at prices at which goods are actually sold.

Answer 1

Answer:

b. valued at prices in a base year.

Explanation:

Real gross domestic product (GDP) is basically nominal GDP adjusted to inflation. This means that the in order for the real GDP to increase or decrease, the actual output of goods and services must change, not only their price.

E.g. a small economy that produces 10 hats at $5 and 5 bikes at $10 in 2019, the 2019 (base year) GDP = $100.

In 2020, the economy produced 12 hats at $50 and 5 bikes at $10, the nominal GDP = $650, but the real GDP = (12 x $5) + (5 x $10) = $110.