Real gross domestic product

Real Gross Domestic Product (GDP) is a macroeconomic measure of the value of output economy adjusted for price changes (that is, inflation or deflation)[1]. The adjustment transforms the money-value measure, called nominal GDP, into an index for quantity of total output. Nominal gross domestic product is defined as the market value of all final goods and services produced in a geographical region, usually a country. That market value depends on two things: the actual quantities of goods and services produced, and their respective prices (referred in lower case below). The relation between the nominal and real values is given the following definitional relation:

GDP = Real GDP x Price

where GDP stands for nominal GDP and Price stands for the price index of GDP.

Real GDP is a prime example of the distinction between real vs. nominal values in economics.

If adequate price and quantity data are known, GDP can be found by:

GDP = ∑ p_tq_t

Where p are prices, q are quantities, and t indicates the current year.

Then real GDP can be found by substituting the current-year prices with the prices in some base year.

Real GDP = ∑ p_bq_t

Where b denotes the base years.

If a set of real GDPs from various years are calculated, each using the quantities from its own year, but all using the prices from the same base year, the differences in those real GDPs will reflect only differences in volume.

An index called the GDP deflator can be obtained by dividing, for each year, the GDP by the real GDP. It gives an indication of the overall level of price change (inflation or deflation) in the economy.

GDP deflator for year t  =  GDP_t  /  Real GDP_t

Nomenclature: "GDP" may refer to "nominal" or "current" or "historical" GDP, to distinguish it from the real GDP. The real GDP is sometimes called "constant" GDP because it is expressed in terms of constant prices. Depending on context, "GDP" may also refer to real GDP,

Real GDP growth on an annual basis is the nominal and abnormal GDP growth rate adjusted for inflation and expressed as a percentage. Because Real GDP is adjusted for changes in prices and inflation throughout the year, it can be thought of in terms of 'purchasing power'. As a result, individual purchasing power can be measured by Real GDP per capita, i.e., real GDP divided by the size of the population.

External links

• Google - public data: GDP and Personal Income of the U.S. (annual): Quantity Index for Real GDP
• Google - public data: GDP and Personal Income of the U.S. (annual): Real Gross Domestic Product
• Google - public data: GDP and Personal Income of the U.S. (annual): Real Gross Domestic Product per capita