Question

Why do we often use chain-weighting in place of traditional methods of calculating real GDP?

Select one:

a. We think that items might change over time, which makes their price comparison less meaningful.

b. Because we are interested in comparing the welfare of individuals over time, not simply the amount of money that they have.

c. Because imports caused biases in GNP, which caused economists to make the switch.

d. Computers have allowed us to use more complex algorithms to find patterns.

Answer 1

Option A.

We often use chain-weighting in place of traditional methods of calculating real GDP because chain weighted measure accounts for changes in both price and spending patterns. As the price changes, the quantity consumed of the good also changes. Thus, this measure also reflects the changes in the number of goods bought. Thus, Option A is correct.