Real gross domestic product

From Wikipedia, the free encyclopedia
Jump to: navigation, search

Real Gross Domestic Product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation).[1] This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Although GDP is total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by industry, excess of exports over imports, and government spending. Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate (raised to the power of units of time in which the rate is measured) to get the growth of the real GDP. Different organizations use different types of 'Real GDP' measures, for example the United Nations UNCTAD uses 2005 Constant prices and exchange rates while the FRED uses 2009 constant prices and exchange rates, and recently the World Bank switched from 2005 to 2010 constant prices and exchange rates.[2][3][4]

10 Largest Countries by GDP according to UNCTAD at 2005 constant prices and exchange rates, 2015 [5] [6]
Economy
Top 10 countries by GDP in 2015 (millions in 2005 constant USD and exchange rates)
(01)  United States
15,160,104
(02)  China
5,762,185
(03)  Japan
5,018,510
(04)  Germany
3,291,225
(05)  United Kingdom
2,821,007
(06)  France
2,406,570
(07)  Italy
1,766,169
(08)  India
1,677,339
(09)  Canada
1,377,908
(10)  Brazil
1,130,906

Industrial sector of Nations using Real GDP[edit]

Nations by Industrial Sector output at 2005 Constant prices
20 Largest Countries by industrial output according to UNCTAD at 2005 constant prices and exchange rates, 2015 [7] [8]
Economy
Top 20 countries by industrial output in 2015 (millions in 2005 constant USD and exchange rates)
(01)  United States
3,042,332
(02)  China
2,837,667
(03)  Japan
1,415,551
(04)  Germany
889,336
(05)  India
499,519
(06)  United Kingdom
468,181
(07)  South Korea
454,504
(08)  France
415,400
(09)  Canada
370,732
(10)  Italy
369,751
(11)  Mexico
365,959
(12)  Russia
277,858
(13)  Brazil
267,769
(14)  Australia
261,385
(15)  Saudi Arabia
256,969
(16)  Spain
254,480
(17)  Republic of China
204,109
(18)  Indonesia
198,254
(19)  Turkey
177,586
(20)  Poland
141,921

Real GDP can take the form of 2005 constant prices and exchange rates, in the list shown above 2005 constant prices and exchange rates are used to measure the Industry of a nations using Real GDP.

Relationship with nominal GDP[edit]

Real GDP is an example of the distinction between real vs. nominal values in economics. Nominal gross domestic product is defined as the market value of all final goods produced in a geographical region, usually a country. That market value depends on the quantities of goods and services produced, and their respective prices.

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 nominal GDP by the real GDP, so that the GDP deflator for the base year will be 100. It gives an indication of the overall level of price change (inflation or deflation) in the economy.

GDP deflator for year t  =  (nominal GDPt  /  Real GDPt) * 100

Real GDP growth on an annual basis is the nominal GDP growth rate adjusted for inflation. It is usually expressed as a percentage.

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.

Relationship with purchasing power[edit]

Since real GDP is adjusted for inflation throughout the year, it can be thought of in terms of purchasing power.[clarification needed] 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.

Notes and references[edit]

External links[edit]

  • 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