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Real Gross Domestic Product

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What Is Real Gross Domestic Product?

Real GDP is a measure of economic production that takes into account the impacts of inflation and deflation. It offers a more accurate picture of an increase than nominal GDP. Without real GDP, it may appear that a nation is generating more while prices have risen.

Deeper Definition

Real GDP is a macroeconomic metric that quantifies the value of the assets generated by an economy at a given time after accounting for inflation. It gauges a country’s overall economic production after adjusting for price variations. Governments analyze growth in the economy and buying power through time using both nominal and real GDP as measurements. This is accomplished through the use of the GDP price deflator (also known as the implicit price deflator), which assesses price changes for all products and services in the economy.

It is most likely the nominal GDP when your country releases a GDP report without specifying the kind. Nominal GDP includes both growth and price changes, whereas real GDP only includes growth. Without any price adjustments, real GDP is the same as nominal GDP.

The nominal GDP represents the total worth of all final products and services in a given year by a country. It’s estimated using the current pricing of the year the output is created. The entire value of all final products and services produced by an economy in a given year, adjusted for inflation, is known as real GDP.

Real GDP is calculated by dividing nominal GDP by the deflator.

Real Gross Domestic Product Example

In 2019, real GDP was $19.073 trillion, nominal GDP was $21.427 trillion, and the deflator was 1.1234.34

The Bureau of Economic Analysis (BEA) assesses and monitors inflation in the United States since the chosen reference year. That’s the difference between what it’d cost now and what it would have cost in the reference year. It’s identical to the Consumer Price Index but has a different weighting scheme.

In its national income product account (NIPA) table 1.1.9, the BEA provides so-called implicit price deflators. It may be found on the BEA website under the Interactive Tables area.

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