Question

Suppose that the base year is 2000 and we want to calculate real GDP for 2007. Which procedure would you use?

A) Multiply the quantities in 2000 by the prices in 2007 and add up the results.
B) Multiply the quantities in 2007 by the prices in 2007 and add up the results.
C) Multiply the quantities in 2007 by the prices in 2000 and add up the results.
D) Multiply the quantities in 2007 by the prices in 2007 and subtract them from nominal GDP in
2000.

Answer 1

To calculate the real GDP for 2007, you need to multiply the quantities in 2007 by the prices in the base year, which is 2000.

Step-by-step explanation:

To calculate the real GDP for 2007, you need to multiply the quantities in 2007 by the prices in the base year, which is 2000. This is because real GDP is constructed using prices that do not change from year to year. So, the correct procedure would be to use Option C) Multiply the quantities in 2007 by the prices in 2000 and add up the results.