2. From 2005 to 2010, the price of electronic equipment fell dramatically and the price of housing rose dramatically. What are the implications of this in deciding whether to use 2005 or 2010 as the base year in calculating 2013 real GDP?
A price index based on 2005 prices will contain a relatively high price of electronics and a relatively low price of housing compared to a price index based on 2010 prices. This means that a 2005 price index used to calculate real GDP in 2013 will magnify the value of electronics production in the economy, but a 2010 price index will magnify the value of housing production in the economy.