The base year refers to the year whose:
A) prices are used to calculate real GDP for all years.
B) levels of output are used to calculate the real GDP for all years.
C) prices are used to calculate nominal GDP for all years.
D) levels of output are used to calculate the nominal GDP for all years.

Question

Quizplus · Accepted Answer

In calculating real GDP for all years, the base year's prices are used as a benchmark to adjust for inflation. Therefore, option A is the correct answer. Option B is incorrect because the base year's output levels are not used to calculate real GDP; they are simply used as a reference point to calculate growth rates. Option C is incorrect because the base year's prices are not used to calculate nominal GDP for all years; instead, each year's prices are used to calculate the nominal GDP. Option D is also incorrect for the same reason; the levels of output in each year are used to calculate the nominal GDP.

The Base Year Refers to the Year Whose