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A hedonic price index for a specific good is based on the price of the good's various characteristics. For example, hedonic price indices are often applied to computers. The price of a computer can be explained as the price of its processor speed, memory, hard drive capacity, and so on. Hedonic price indices can vary over time as the prices of the underlying characteristics change.
Just to take an example, let's say the UK produced one computer in 1975, and sold that computer for 1 million pounds in nominal currency, and say that is 2 million pounds in real terms, when reflected in today's currency. Today, 2006, they produce that computer and sell it for 2 thousand pounds. Surely you are not saying that the UK GDP component for computer (remember only one made and sold in each of those years) means that in real terms the GDP has dropped from 2 million pounds in 1975 to 2 thousand pounds in 2006. Is that what you are saying? If not, please explain how "other" countries are addressing this issue.
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