For meaningful comparison common price level base is used becausea)100...
Option is 'C' it is because : nominal GDP÷Price Index ×100 = Real GDP & price index = Nominal GDP÷ Price index ×100 . So, that change in GDP owing to the Change In th Price level.
For meaningful comparison common price level base is used becausea)100...
Meaningful comparison of price levels using a common base
Introduction
When comparing price levels between different countries, it is important to use a common base for a meaningful comparison. This is because the prices of goods and services can vary significantly across countries due to factors such as exchange rates, cost of living, and economic conditions. By using a common price level base, we can eliminate these variations and make accurate comparisons.
Reasons for using a common price level base
There are two main reasons why a common price level base is used for meaningful comparisons:
1. Variation in GDP
- One of the reasons for using a common price level base is that the GDP of one country is not the same as the GDP of another country.
- GDP (Gross Domestic Product) is a measure of the economic output of a country. It represents the total value of goods and services produced within a country's borders in a specific period.
- However, the value of GDP can vary across countries due to differences in the prices of goods and services.
- For example, 100 units of GDP in one country may represent a higher quantity of goods and services compared to 100 units of GDP in another country. This is because the prices of goods and services can be higher or lower in different countries.
- By using a common price level base, we can adjust the GDP figures to reflect the differences in prices and make accurate comparisons between countries.
2. Variation in domestic prices
- Another reason for using a common price level base is the variation in domestic prices across different countries.
- The prices of goods and services can differ significantly between countries due to factors such as exchange rates, cost of living, and economic conditions.
- For example, the price of a loaf of bread may be significantly higher in one country compared to another country, even if the quality and quantity of the bread are similar.
- By using a common price level base, we can eliminate these variations in domestic prices and make fair comparisons between countries.
Conclusion
In conclusion, a common price level base is used for meaningful comparisons because the GDP of one country is not the same as the GDP of another country, and domestic prices vary across different countries. By using a common price level base, we can adjust for these variations and make accurate and fair comparisons between countries.
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