To compute real GDP for Year 2 using Year 1 as the base year, one must multiply the quantities of goods and services produced in
- Year 2 by the prices that existed in Year 1. (correct answer)
- Year 2 by the prices that existed in Year 2.
- Year 1 by the prices that existed in Year 2.
- Year 1 by the prices that existed in Year 1.
Explanation: The definition of real GDP is the value of current output measured at constant, base-year prices. Therefore, to calculate real GDP for Year 2, one must use the quantities from Year 2 and the prices from the base year, which is Year 1.