Which of the following statements about real GDP is true?

• A. Real GDP increases whenever the overall price level rises, even if quantities produced do not change.
• B. Real GDP excludes all services and includes only physical goods to avoid price changes.
• C. Real GDP measures the value of final goods and services produced using current-year prices, so it is not adjusted for inflation.
• D. Real GDP measures the value of final goods and services produced using prices from a base year, so it adjusts for inflation.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the definition of Real GDP. Real GDP measures the value of all final goods and services produced within a country in a given period, adjusted for changes in the price level (inflation or deflation).
2. Step 2: Recognize that Real GDP uses prices from a base year rather than current-year prices. This adjustment allows Real GDP to reflect changes in quantities produced, not changes in prices.
3. Step 3: Contrast Real GDP with Nominal GDP. Nominal GDP values output using current-year prices and therefore can increase simply due to price increases, even if quantities remain constant.
4. Step 4: Analyze the given statements: The statement that Real GDP increases whenever the overall price level rises is false because Real GDP is adjusted for price changes. The statement that Real GDP excludes services is false because it includes both goods and services. The statement that Real GDP uses current-year prices is false because it uses base-year prices.
5. Step 5: Conclude that the true statement is: Real GDP measures the value of final goods and services produced using prices from a base year, so it adjusts for inflation.