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Chapter 11: Problem 1

Define: a. base year b. real GDP

Short Answer

Expert verified
The base year is a specific year against which other years are compared in economics, often holding a value of 100. Real GDP is a measure of economic output, adjusting for price changes (such as inflation or deflation), used to compare the overall output of an economy over time or between various economies at different price levels.

Step by step solution

01

Define Base Year

In economics, the base year refers to a specific year that is picked as a benchmark or point of reference in constructing an index number or computing economic data. It is the year against which other years are compared. The base year often holds a value of 100. Changes in prices, GDP, inflation, etc. in subsequent years are measured relative to the base year.
02

Define Real GDP

Real Gross Domestic Product (Real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Real GDP is used to compare the overall output (goods and services) of an economy over time or between different economies when they are at different price levels.

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Most popular questions from this chapter

Suppose consumption is \(\$ 2,000\) billion, investment is \(\$ 700\) billion, government purchases are \(\$ 1,200\) billion, export spending is \(\$ 100\) billion, and import spending is \(\$ 150\) billion. What does GDP equal?

When real GDP increases, which variable P or \(Q\), is increasing?

Suppose the CPI was 143 in year 1 and 132 in year 2 Did prices rise or fall between year 1 and year \(2 ?\)

Which of the following are included in the calculation of this year's GDP? a. Twelve-year-old Bobby mowing his family's lawn c. Barbara Wilson buying 100 shares of Chrysler Corporation stock d. Stephen Sidwhali's receipt of a Social Security check e. An illegal sale at the corner of Elm and Jefferson

Gross domestic product is \(\$ 6,000\) billion in one year and \(\$ 6,500\) billion the next year. Is output necessarily higher in the second year than in the first? Explain your answer.
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