Under which condition is comparison of real GDP across years more meaningful?
Answer and explanation
Correct answer: When output is valued at common base-year prices
Meaningful comparison across years requires separating changes in production quantities from changes in prices. Valuing each year’s output at common base-year prices removes the influence of changing prices and makes the resulting real GDP series more comparable. Thus option B is correct. Current prices measure nominal GDP, adding imports is conceptually wrong, and changing currencies does not solve the price-bias problem.
Frequently asked questions
What is the correct answer to this question?
When output is valued at common base-year prices
Why is this the correct answer?
Meaningful comparison across years requires separating changes in production quantities from changes in prices. Valuing each year’s output at common base-year prices removes the influence of changing prices and makes the resulting real GDP series more comparable. Thus option B is correct. Current prices measure nominal GDP, adding imports is conceptually wrong, and changing currencies does not solve the price-bias problem.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
