What is the benefit of keeping base-year prices constant while calculating real GDP?
Answer and explanation
Correct answer: It allows comparison of output quantities across years
Real GDP is designed to measure changes in production rather than changes in prices. By valuing goods and services from different years at the same base-year prices, the price effect is held constant and output quantities become comparable. Therefore option A is correct. Constant prices do not make all prices identical, stabilize money supply, or eliminate imports.
Frequently asked questions
What is the correct answer to this question?
It allows comparison of output quantities across years
Why is this the correct answer?
Real GDP is designed to measure changes in production rather than changes in prices. By valuing goods and services from different years at the same base-year prices, the price effect is held constant and output quantities become comparable. Therefore option A is correct. Constant prices do not make all prices identical, stabilize money supply, or eliminate imports.
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.
