For example the real gdp in 1990 is 4 times 40 units

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Unformatted text preview: , we simply multiply the quantity of X the country produces in each year by the price it sells X for in the base year. For example, the real GDP in 1990 is $4 times 40 units, which equals $160. The real GDP in 1999 is $4 times 45 units, which equals $180. The real GDP in 2005 is equal to $4 times 40 units, which is $160. Notice that the real GDP is the same in both 1990 and 2005. You may be wondering how economists decide what year will be the base year when calculating real GDP. Unfortunately there is no easy answer to this question. The base year has to be a year in the past, but not too far in the past. For example, no economist would choose 1865 as a base year because that is too long ago. The economic world then was much different from today. Economists generally want the base year to be a year in the near past in which no major economic events were occurring. They try not to pick a year in which there were large increases in prices or high unemployment. Aside from those factors, however, choosing the base ye...
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This document was uploaded on 01/16/2014.

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