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Understanding GDP Measurement

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Questions and Answers

Which index tends to overstate price changes according to the text?

Consumer Price Index

Paasche price index

Laspeyres price index (correct)

GDP

What does CPI measure according to the text?

Prices of imported goods and services bought by consumers

Value of all goods and services bought by consumers (correct)

Value of all goods and services produced in the economy

Prices of all goods and services produced in the economy

What is a key difference between GDP and CPI as described in the text?

GDP uses fixed prices while CPI allows changes in prices

CPI considers imported goods and services while GDP does not (correct)

GDP measures prices of all goods and services bought by consumers

CPI measures value of all goods and services produced in the economy

Which index uses base-period quantities for calculation according to the text?

Laspeyres price index Signup and view all the answers

What is a characteristic of Paasche price index mentioned in the text?

It calculates cost at current-period prices for a fixed basket of goods Signup and view all the answers

What does GDP measure according to the text?

Total income of all citizens and total expenditure on goods and services Signup and view all the answers

Why can GDP measure both total income and total expenditure simultaneously?

Because total income must equal total expenditure in an economy Signup and view all the answers

What is the difference between Nominal GDP and Real GDP?

Real GDP is adjusted for inflation, while Nominal GDP is not Signup and view all the answers

How is GDP defined according to the text?

The total value of all goods and services produced within a country's borders in a specific period Signup and view all the answers

What does Real GDP reflect?

Value of goods and services produced using constant prices Signup and view all the answers