Economists generally use real GDP as a reference point because it:
A) captures spending in the underground economy.
B) is seasonally adjusted for variations in spending habits.
C) varies less than nominal GDP does.
D) isolates changes in output.

Question

Quizplus · Accepted Answer

Real GDP isolates changes in output by adjusting for changes in prices, so it provides a better measure of economic growth and productivity over time than nominal GDP, which includes changes in both output and prices. A is incorrect because real GDP still does not capture activity in the underground economy, as it is difficult to measure. B is incorrect because while real GDP can be seasonally adjusted, this is not the primary reason economists prefer it to nominal GDP. C is also incorrect because real GDP can still vary depending on changes in output, but it is less affected by changes in prices.

Economists Generally Use Real GDP as a Reference Point Because