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Say, for example, a textbook costs $100 in the base year, and a laptop costs $2,000. This means that the laptop would have 20 times
Say, for example, a textbook costs $100 in the base year, and a laptop costs $2,000. This means that the laptop would have 20 times the weight of a book in calculating aggregate output. But what happens when relative prices change? As you know, the prices of most high-tech items, including laptops, have generally been decreasing over time. Suppose the price of a laptop declined from $2,000 to $1,000 in the period from the base year to the current year. Now, a laptop costs only 10 times as much as the book. So. using base-year relative prices would overweight laptops in calculating real GDP in the current year. In response to this problem, in 1996 the BEA switched to what is called a chain-weighted method of calculating real GDP Say the base year is 2008. To calculate the growth rate of real GDP between 2008 and 2009, for example, the BEA calculates real GDP for 2008 using 2008 as the base, and then real GDP for 2008 using 2009 as the base. Then, the bureau calculates real GDP for 2009 using 2009 as the base, and real GDP for 2009 using 2008 as the base. For each base, the growth rate is then calculated as: 2009 Spam, 5m) - 2008 scam, Base) 2009 GDP(2009 5m, 2008 6013909955\
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