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Comprehension:

GDP figures and other macroeconomic variables

Suppose a country only produces rice. In the year 2020, it produced 100 Kg of rice. The price was Rs 10 per kg of rice and the GDP at the current price was Rs 1,000. In 2021, the same country will produce 110 Kg of rice at a price of Rs 15 per kg.

What is the base year?

Solution

✅ Correct Option: 2

The correct option (or the base year itself) is:

2020


Explanation:

In macroeconomics, the base year serves as the benchmark year against which changes in prices and quantities are measured over time.

  1. Given Baseline: The data explicitly states that the price and production for the year 2020 are used to calculate the initial GDP figure (100 Kg×Rs 10=Rs 1,000100 \text{ Kg} \times \text{Rs } 10 = \text{Rs } 1,000).
  2. Current Price Framework: When evaluating subsequent years (like 2021), economists compare the new market realities (Rs 15 per kg) against this established starting point to distinguish between nominal growth (due to inflation) and real growth (due to an increase in actual production output from 100 Kg to 110 Kg).

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